MSCI Barra launches frontier markets, tradable Asia indices

Both are in response to demand from investors seeking new markets and a tradable proxy for the broader Asia ex-Japan index.
Index provider MSCI Barra has launched a new series of benchmark indices covering 19 frontier markets, or those that are just beginning to attract significant portfolio investments. It has also launched a new tradable index for Asia, the MSCI Asia Apex 50 Index. Both launches are in response to demand from clients.

ôOur decision to launch the MSCI frontier markets indices reflects the growing interest from international investors in these equity markets,ö says Henry Fernandez, chairman and CEO of MSCI Barra.

Indeed, more investors are looking into frontier markets in an effort to diversify and to enter markets where share prices are still low but the potential for sharp gains over a long-term period are high.

The MSCI frontier markets indices will cover 19 countries. These include Bulgaria, Croatia, Estonia, Kazakhstan, Romania, Slovenia and Ukraine in central and eastern Europe and the Commonwealth of Independent States (CIS); Kenya, Mauritius, Nigeria and Tunisia in Africa; Bahrain, Kuwait, Oman, Qatar, the United Arab Emirates and Lebanon in the Middle East; and Sri Lanka and Vietnam in Asia.

Saudi Arabia has been excluded from the MSCI frontier markets indices due to the investment restriction applied to foreign investors based outside the Gulf Cooperation Council (GCC) countries.

MSCI Barra will continue to monitor potential markets that may qualify for the MSCI frontier markets indices on a semi-annual basis, during its May and November semi-annual index reviews. Additional frontier markets that could be considered during the next review in May include Georgia, Latvia, Lithuania and Serbia in central and eastern Europe and CIS; Senegal in Africa; and Jamaica and Trinidad & Tobago in Latin America and the Caribbean.

The MSCI frontier markets indices will be the basis for the creation of a series of new regional and global composite indices that combine with the existing MSCI emerging markets and MSCI all country indices. The resulting indices will include the MSCI Emerging and Frontier Markets Index and the MSCI All Country World and Frontier Markets Index.

The MSCI frontier markets indices methodology follows similar principles to the methodology of the MSCI global investable market indices, but takes into account the specific market capitalization structure and liquidity constraints that characterize these markets. MSCI Barra consulted with market participants worldwide since August before finalizing the index methodology.

MSCI Barra will sought feedback on the definition of the frontier markets universe, the investment process needs relating to frontier markets investing, and the objectives as well as the design of any proposed frontier markets indices.

Meanwhile, the MSCI Asia APEX 50 Index will consist of the 50 largest stocks by market capitalization in Asia excluding Japan. The index is designed to serve as the basis for investment products such as exchange traded and over-the-counter (OTC) derivative products, exchange traded funds and other passive vehicles.

The calculation of both the MSCI frontier markets indices and the MSCI Asia APEX 50 Index will start as of the close of November 30.

ôThe MSCI Asia APEX 50 Index is being launched in response to investor demand for a tradable index based on the MSCI AC Asia ex-Japan Index,ö Fernandez says. ôAs the individual country markets across Asia have become more accessible, the demand for index linked products based on the region has increased.ö

The MSCI Asia APEX 50 will serve as a tradable proxy for the broader and widely used MSCI AC Asia ex-Japan Index. The index methodology, based on feedback from participants in the OTC and structured product markets, is designed to optimize tradability while preserving an acceptable level of tracking error to the broader MSCI AC Asia ex-Japan Index.
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