United Arab Emirates and Egypt shares are poised to attract overseas investors after Vanguard Group Inc., the largest U.S. mutual-fund provider, switched to FTSE Group from MSCI Inc. (MSCI), EFG-Hermes Holding SAE said.
The move opens up Vanguard’s $67 billion emerging-markets fund to the U.A.E. since the Arab nation is ranked higher at FTSE than it is at MSCI, Julian Bruce, EFG-Hermes’ Dubai-based director of institutional sales trading, said by e-mail today. The second-largest Arab economy has emerging-market status at FTSE and frontier status at MSCI.
U.A.E. stock exchanges comprise 0.34 percent of FTSE’s EM index, while the weighting of Egypt’s benchmark gauge, the world’s best performer this year, is 0.51 percent, compared with 0.36 percent in MSCI. Benchmarks in Dubai, Abu Dhabi and Egypt rose today, with the DFM General Index (DFMGI) soaring to the highest level in more than five months and Egypt’s EGX 30 Index (EGX30) climbing 0.8 percent, snapping a four-day drop, at the close.
“The news that one of the largest EM exchange-traded funds is switching to the FTSE index series is a positive factor for both the U.A.E. and Egypt,” Bruce said. “Whilst overall weightings of those countries within the global series are very small, they are meaningful when compared with average daily value traded, especially in the U.A.E. Timing remains uncertain but this type of event is always a catalyst for increased speculative activity.”
The move by Vanguard, which will use FTSE as a benchmark for about $537 billion of assets, comes after Dubai trading volumes dropped as Europe’s debt crisis trimmed the appetite for riskier assets. About 228 million shares traded in Dubai today, down from March’s 835 million peak. U.A.E. equities are valued at $108 billion and those in Egypt at $69 billion, according to data compiled by Bloomberg.
The U.A.E. failed for a fourth year to secure an upgrade at MSCI to emerging-market status in June, as the index provider cited issues with market accessibility. Dubai’s index rose 1.2 percent to 1,623.24 at the close in the emirate, the highest since May 1. The measure has rallied 20 percent this year, making it the best-performing stock market in the six-nation Gulf Cooperation Council (BGCC200), which includes Saudi Arabia.
Abu Dhabi’s ADX General Index (ADSMI), which is up 10 percent in 2012, added 0.2 percent while Egypt’s EGX 30 Index gained the most since Sept. 25, advancing to 5,656.15. Egyptian shares have soared 56 percent this year, outperforming 90 global indexes tracked by Bloomberg.
Vanguard will adopt benchmarks from FTSE for six international stock index funds, and gauges developed by the University of Chicago’s Center for Research in Security Prices for 16 U.S. equity and balanced funds, the Pennsylvania-based firm said yesterday.
The change will affect both index mutual funds and exchange-traded funds at Vanguard, whose ETFs are structured as share classes of its mutual funds. The switch to the FTSE benchmarks, which includes about $170 billion in fund assets, is the largest in international index providers, FTSE said. MSCI shares slumped 27 percent in New York yesterday, the most on record, to $26.21.
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