FACTBOX — MSCI, its classifications and what they mean
JAKARTA, Oct 16 (Reuters) — Global index provider MSCI said on Friday it was considering downgrading Indonesia's stock market to "standalone" status from the "emerging market" category, dealing a major blow to Southeast Asia's biggest economy. The news stunned investors and irked officials in Jakarta, sending stocks and the rupiah currency tumbling, as the move is worse than a previous threat of downgrade to "frontier market" status. MSCI says it classifies its indices in four categories based on level of economic development, size and liquidity of the market and openness to investors. They are: DEVELOPED MARKETS This classification is for the most mature and accessible equity markets, with virtually unrestricted access for foreign investors, a very high flow of capital, efficient trading systems and stable regulatory frameworks. To qualify, a market must have a gross national income per capita that is 25% above the World Bank's high-income threshold for three consecutive years. The United States, Japan and Singapore fall in this category. EMERGING MARKETS Although MSCI's classification framework for "emerging market" does not have requirements of economic development, countries in
JAKARTA, Oct 16 (Reuters) — Global index provider MSCI said on Friday it was considering downgrading Indonesia's stock market to "standalone" status from the "emerging market" category, dealing a major blow to Southeast Asia's biggest economy. The news stunned investors and irked officials in Jakarta, sending stocks and the rupiah currency tumbling, as the move is worse than a previous threat of downgrade to "frontier market" status. MSCI says it classifies its indices in four categories based on level of economic development, size and liquidity of the market and openness to investors.
They are: DEVELOPED MARKETS This classification is for the most mature and accessible equity markets, with virtually unrestricted access for foreign investors, a very high flow of capital, efficient trading systems and stable regulatory frameworks. To qualify, a market must have a gross national income per capita that is 25% above the World Bank's high-income threshold for three consecutive years. The United States, Japan and Singapore fall in this category. EMERGING MARKETS Although MSCI's classification framework for "emerging market" does not have requirements of economic development, countries in this segment are typically those considered as emerging economies.
The "emerging market" classification is for markets with significant openness to foreign ownership and ease of capital flows, but still with some limitations, compared to a "developed market". The market must also have a good and tested trading operational framework, among other features. Markets in this category include Brazil, China, India and South Korea. Indonesia is also one but its index weighting dropped to 0.4% at the end of September from 1.16% at the start of the year.
FRONTIER MARKETS These are the smaller, less developed or less accessible equity markets. Only one company needs to meet MSCI entry requirements and the market must be somewhat open to foreign investors and have at least partial ability for capital to move in and out, with modestly efficient trading and stable institutional frameworks. This classification has a sub-category of "advanced frontier markets," which offer better accessibility to investors but are limited in size and liquidity. Markets in the "frontier" category include Vietnam, Pakistan and Morocco.
"Advanced frontier markets" include European countries such as Latvia and Estonia. STANDALONE MARKET The MSCI "standalone market" index does not put markets in the "emerging" or "frontier" indices, but uses their criteria on size and liquidity. A reclassification to "standalone market" status may result from severe deterioration in market accessibility or size and liquidity. Newly eligible markets are also in this category.
Markets categorised as "standalone" include Argentina, Panama and Ukraine. Indonesia, if moved here, would be the group's largest economy, at more than twice the size of Argentina, the next largest. (Reporting by Fransiska Nangoy; Editing by Gibran Peshimam and Xevi Fontdegloria) ((fransiska.nangoy@tr.com)