Recently, the Financial Times and the London Stock Exchange (FTSE)announced the results of its annual review of country classifications. As the countries’ status changes, the holdings of emerging-market exchange traded funds (ETFs) could also change. The major indexes have different systems for classifying countries by stages of development. FTSE uses a three-tier system of classification that includes "developed," "advanced emerging and "secondary emerging" designations, according to Index Universe staff. The FTSE also updated its Watch List, which tracks countries that have a reasonable likelihood of a status change. Countries under review are:
Israel will become elevated to a developed market in June of 2008. It has been on the Watch List since 2006. Dow Jones and Russell Indexes both classify it as developed, while the S&P and MSCI give it emerging status.
- Hungary and Poland
Both countries have been upgraded to advanced emerging markets. Although they meet quality-of-markets criteria for developed status, they must reach a per capita rating of "high" from the World Bank. However, other major indexes have designated these countries as just emerging.
The FTSE has removed this country because it no longer meets minimum requirements.
Also on the Watch List, this country is in danger of a downgrade from developed to emerging advanced. Current rules and conditions make it difficult for foreign investors to invest in the market, according to FTSE. Other major index providers classify this as a developed market. Greece also has made news as it is about to get its first ETF.
- Taiwan, South Korea
These two countries are on the verge of becoming promoted to developed status from the advanced emerging rank. The Russell, MSCI and S&P Indexes all classify these as emerging countries, while the Dow Jones has them labeled as developed.
China’s A-shares market is on the Watch List although its stock market is untouchable by foreign investors. Two criteria must be met to be included in the FTSE GEIS: 1) substantial expansion of the Qualified Foreign Institutional Investor and 2) removal of restrictions on foreign investment.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.