Egypt, Pakistan and Vietnam have maintained their positions on the FTSE Equity Country Classification Watch List, with all three under review for potential reclassification.
The update was given with FTSE Russell’s publication of the March 2024 FTSE Equity Country Classification Interim Announcement.
Egypt, currently a Secondary Emerging market, was added to the watchlist in September 2023 for a potential reclassification to Unclassified. This was due to reports of “significant, ongoing delays to the ability of international institutional investors to repatriate capital from Egypt and in the execution of foreign exchange (FX) transactions”, FTSE Russell stated.
While FTSE Russell notes improvements to the clearing of outstanding FX queues, including the agreement of a Staff Level loan agreement by the International Monetary Fund, this is an ongoing project and the country will remain on the watch list. Corporate events, some of which have been suspended for Egyptian constituents of FTSE Russell equity indices since June 2023, will be reinstated from 1 April, the company stated.
An update on the country’s status will be published by the end of June 2024.
Pakistan has been on the watch list since September 2023, facing a reclassification of Secondary Emerging to Frontier market status. This is the result of a steady decrease in index weight within FTSE Russell global benchmarks, the company says, causing the country to fall below the Minimum Investable Capitalisation exit level threshold for the Secondary Emerging status.
As of 28 December 2023, Pakistan marginally passed this threshold. It will next be assessed on 28 June, with results announced by 5 July.
Vietnam was placed on the watch list in September 2018 for a reclassification from Frontier to Secondary Emerging. In September 2023, the country’s Prime Minister reaffirmed the market’s commitment to meeting the FTSE Equity Country Classification criteria by 2025, advocating for the amendment of relevant legal regulations, the creation of more favourable conditions and the removal of foreign investors to access the market.
However, FTSE Russell noted a number of issues preventing Vietnam from changing its market status. The country’s Settlement Cycle (DvP) is currently rated as restricted due to the absence of a pre-trading check of fund availability before execution. As there is therefore an absence of failed trades, it cannot fulfil the ‘Settlement—costs associated with failed trades’ criterion and is unrated.
The company also referenced the need for improvements to the process for the registration of new accounts in Vietnam, along with the introduction of a mechanism to facilitate trading between non-domestic investors in securities that have reached, or are approaching, their foreign ownership limit.
“To achieve the 2025 reclassification target, it is imperative that the settlement model be confirmed and widely communicated, relatively soon, including finalisation of the required roles and responsibilities within the settlement model, and a roadmap, with key milestones, setting out the path towards implementation,” FTSE Russell stated.
No changes to the Equity Country Classification framework are currently planned in response to upcoming shortened settlement cycles in Canada, Mexico or the US. However, FTSE Russell affirmed that “the impact of the change to T+1 will be carefully scrutinised as the practical experience of managing the shorter settlement cycle is assessed.”
©Markets Media Europe 2024
