Higher share for Romanian companies in MSCI’s Frontier Markets 100 Index might trigger higher inflows

The weight of Romanian companies listed at Bucharest Stock Exchange (BVB) and included to MSCI Frontier Markets 100 Index will increase to 3.38 percent by November 2014, according to an announcement of the BVB. On July 30, 2014, Romania’s weight into MSCI Frontier Markets 100 Index was 2.23 percent.

As a result, more money should pour into the Romanian capital market, as the MSCI Frontier Markets 100 Index is followed by international investment funds that manage more than USD 14 billion in assets. If all these funds increased their exposures on Romania by only 1 percentage point, this would bring some USD 150 million new inflows to the local market, which is a lot taking into consideration that the average daily volume of equity trading on the BVB is USD 10 to 15 million.

The recent increase of Romania’s share in the MSCI Frontier Markets 100 Index, from 1.5 percent to 2.3 percent, which took place in May, after Qatar and United Arab Emirates were excluded from the index, as these markets were upgraded to emerging market status. This determined significant increases for the blue-chip stocks traded on the BVB.

“This increase will reflect even better the developments occurring within Romanian capital markets and, also, is part of the changes in the methodology of calculating the index and the exit of two countries from the frontier markets category,” BVB representatives explained.

The five Romanian companies included in the MSCI Frontier Markets 100 Index are Banca Transilvania (TLV), OMV Petrom (SNP), Romgaz (SNG), BRD – Groupe Societe Generale (BRD) and Transgaz (TGN).

MSCI Frontier Markets 100 is an investible index, used as benchmark for more ETFs. The index reflects the performance of frontier markets and puts more emphasis on the trading characteristics. The revised methodology of MSCI Frontier Markets 100 Index became effective as of May 2014 and the transition to this will be implemented gradually in seven phases, ending in November 2014.

“The review of MSCI Frontier Market 100 Index will be beneficial for Romanian capital market. The main objective of BVB, widely supported by market participants, the financial regulator ASF and the Government, is the MSCI upgrade of Romanian capital market to emerging market status”, said Ludwik Sobolewski, the BVB CEO.

According to the new index methodology, the requirements for the minimum free float capitalization have increased to around USD 240 million, based on January 2014 data. The first two countries are allocated a maximum weight of 40 percent, down from 50 percent  in the previous structure, while the number of member companies of the index can fofrom 85 to 115, compared to 100 in the previous structure. Kuwait and Nigeria currently have the highest weight in the MSCI Frontier Markets 100 Index.

The Romanian capital market must meet a set of quantitative and qualitative criteria to be upgraded to emerging market. At least three listed companies should simultaneously meet all the requirements of size and liquidity. anca Transilvania, OMV Petrom, Romgaz and BRD-Groupe Societe Generale are the closest to meet these criteria.

Andrei Chirileasa, andrei@romania-insider.com

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