What's going on?
Stocks of companies in Argentina and Saudi Arabia are set to be added to a major benchmark of emerging markets (EM) stocks by MSCI. The news sent stocks in these markets soaring by as much as 5%.
What does this mean?
Well, it’s a pretty big deal. Passive investments – often made by firms which look after your pension money, or robo advisors – in groups of companies compiled by MSCI and others amount to $14 trillion. This new inclusion, starting next summer, will make it much easier for foreign investment to go into Argentina and Saudi Arabia.
The new inclusions will also mean the EM group of companies (a.k.a. index) is less skewed to potentially volatile sectors like technology (which is big in Asia) – providing likely welcome diversification for those investing in high-growth economies.
Why should I care?
For markets: A potential boon for the biggest ever IPO.
Saudi Arabia has been increasing diversification of its economy in order to boost investment into the country, which offers access to substantial natural resources and potential for high economic growth. Inclusion in the MSCI opens the floodgates to a new wave of potential investors, who may potentially be interested in the biggest IPO ever in 2019.
The bigger picture: Argentina rises from the ashes.
The MSCI inclusion could help to bring Argentina’s recent economic troubles to a close – its stock index has sunk by 37% and the value of its currency has fallen 33% in 2018. The country recently got a $50 billion financing deal from the International Monetary Fund (IMF, the bank for countries) to help stabilize its economy. The MSCI inclusion will see more money coming into the country, helping it to balance the ship.