Israel was raised to developed- market status at MSCI Inc., whose stock indexes are tracked by investors with about $3 trillion in assets. South Korea, which was under review for an upgrade, remained an emerging market. Israel, with $134.5 billion in stock-market value, was the 14th-biggest nation classified as an emerging economy by the New York-based firm, according to data compiled by Bloomberg. Korea will be evaluated for the developed-markets designation again in 2010, MSCI said.The TA-25 Index of Tel Aviv shares has surged 30 percent in 2009, beating 20 out of 23 developed markets tracked by MSCI. Israeli technology and chemical companies may attract increased investment, according to Michael Wang, London-based strategist at Morgan Stanley.
“They deserve that distinction,” said Marc Tommasi, the Fairport, New York-based managing director of global strategies at Manning & Napier Advisors, which oversees $3.6 billion of equities outside the U.S. Becoming a developed market “opens countries to a broader universe of potential investors.”
Israel will shift in 2010. MSCI also said it will consider making Taiwan a developed market. The firm announced that the United Arab Emirates, Qatar and Kuwait will remain frontier markets.
Tel Aviv Stock Exchange Chief Executive Officer Ester Levanon said Israel’s upgrade by MSCI will draw “endless” investments opportunities. “We finally broke the glass ceiling,” she said in a telephone interview today. “We’re playing with the big boys now.”
South Korea wasn’t classified as a developed market because its currency isn’t fully convertible and its stock market’s real-time data didn’t meet the requirement for the change, MSCI said.
“Investors have continued to highlight some significant accessibility issues for Korea which are not characteristic of developed markets,” MSCI said.
The benchmark Kospi index fell for a second day, declining 0.9 percent to 1,399.15 as of 3:13 p.m. in Seoul trading. The measure has risen 25 percent this year, lagging behind the gain in MSCI’s gauge of emerging markets.
“The South Korean stock market wasn’t interested in the MSCI upgrade, so I don’t think it will negatively affect the market,” said Lee Jin Woo, a fund manager at Seoul-based KTB Asset Management Co., which manages $9 billion in assets. “Global money is likely to focus on emerging economies, which will recover faster than developed markets. I cannot see many benefits from the upgrade under the current situation.”
The MSCI Emerging Markets Index of 22 developing nations has surged 35 percent this year as oil and metals prices rallied on signs the worst of the global recession is over, boosting the outlook for commodity producers. The MSCI World Index of 23 developed countries has climbed 4.9 percent, while the MSCI Frontier Markets Index that includes companies from 25 nations gained 14 percent.
Greece, which became a developed market in 2001, was the last nation to win that designation at MSCI.
Valuations on the TA-25 have more than doubled since the fourth quarter. Using the prior 12 months of operating profit, the price-to-earnings ratio for the TA-25 has jumped to 24.5 from 9.6 in November.
Israel’s economy is forecast to expand 0.3 percent in 2010, after shrinking 1.7 percent this year, the International Monetary Fund said in its April World Economic Outlook report.
The TA-25 Index fell 3.3 percent yesterday, the most in 2 1/2 months. Emerging-market investors prevented from owning the nation’s shares should it become a developed market may have sold stock in anticipation of MSCI’s change.
“We expect a significant negative impact on the TA-25,” Daniel Rapoport, the head of trading at Excellence Nessuah Investments Ltd. in Ramat Gan, Israel, wrote in an e-mail following MSCI’s announcement.
Selling by emerging-market investors barred from owning stocks in developed markets will probably exceed purchases from asset managers who specialize in the latter, Rapoport wrote.
“Moreover, while we expect the outflow to start immediately, the inflows will commence only after May 2010 when the implementation starts officially,” he wrote. “This could quickly create a significant downward pressure on the index.”