Leading index compiler Morgan Stanley Capital International (MSCI) announced changes to the MSCI Frontier Market Index in its May 2020 semi-annual review, in particular one addition and five deletions from the index.
The only addition to the MSCI Frontier Markets Index is Lebanon’s BLOM Bank. The company has had difficulties in recent times, especially as ratings agencies have highlighted a lack of confidence in its credit rating and liquidity concerns towards the end of last year. For example, S&P Global Ratings downgraded BLOM bank from “CCC” to “Selective Default” in December 2019, following in the footsteps of Moody’s who downgraded the bank’s local currency rating from Caa1 to Caa2 in November 2019, pushing it deeper into the “junk” territory.
One glimmer of hope is Lebanon’s move away from a pegged to a flexible exchange rate in order to “secure external funding for an economic overhaul” and combat its ongoing financial crisis. This may restore confidence in the banking sector in the long-run, with BLOM Bank being one of the major players to be a in a prime position to benefit from it.
There were five deletions from the MSCI Frontier Markets Index
1. Managem (Morocco)
Managem, the largest mining firm in Morocco, is one of the five constituents to be removed from the MSCI Frontier Markets Index.
It reported a fall in net profits last year due to a decline in the average prices of cobalt, zinc and copper. It was also one of the worst performing stocks on the Casablanca Stock Exchange during the first quarter of the year, shedding almost 45% of its value as it was rocked by falling commodity prices and the ongoing Global Coronavirus Pandemic.
2. Gulf Finance House (Bahrain)
Bahrain-based Gulf Finance House was one of the three constituents in the MSCI Frontier Markets Index to be dropped to the small cap segment.
Its share price has dropped by 37.5% since the beginning of the year.
3. Bank Audi (Lebanon)
Bank Audi is one of the largest banks in Lebanon (in terms of customer deposits and total assets) and makes its exit from the MSCI Frontier Markets Index while rival BLOM Bank enters in its place.
The value of its shares has declined by just over 65% since the start of the year.
4. Ooredoo (Oman)
Telecommunications company Ooredoo follows Gulf Finance House into the MSCI Frontier Markets Small Cap Index.
First-quarter revenues fell by 1.7% to QAR 638 million ($175 million) and also a 27.1% drop in net profit for the same quarter, primarily due to Ooredoo’s total subscriber base falling by 6.7% in that period.
5. Zavarovalnica Triglav (Slovenia)
The final constituent that will be removed from the MSCI Frontier Markets Index – and also the third to be moved to the small cap segment – is Ljubljana-based insurance company Zavarovalnica Triglav. The firm has recently announced that it will not pay a dividend in 2020 in a “decision as a liquidity safeguard measure amidst the coronavirus crisis”. The recent fall in its market cap has led to MSCI reducing its status within the Frontier Market Indexes.
On the small cap front, there were nine additions to and 12 deletions from the MSCI Frontier Markets Index. They are listed below:
Oman had the most additions to the MSCI Frontier Markets Small Cap Index, with three companies being included, the most notable being Ooredoo which was “demoted” from the MSCI Frontier Markets Index (as mentioned in the section above). Kenya and Vietnam closely follow with two additions, while Bahrain and Slovenia complete the list with one apiece, both being relegated from the standard Index (Gulf Finance House and Zavarovalnica Triglav respectively). The complete list is below:
- Gulf Finance House (Bahrain) – previously in the MSCI Frontier Markets Index
- Ahli Bank (Oman)
- National Bank of Oman (Oman)
- Ooredoo (Oman) – previously in the MSCI Frontier Markets Index
- Zavarovalnica Triglav (Slovenia) – previously in the MSCI Frontier Markets Index
- British American Tobacco Kenya (Kenya)
- Co-op Bank of Kenya (Kenya)
- Hoang Anh Gia Lai Argiculture (Vietnam)
- Vicostone (Vietnam)
Vietnam had the largest number of countries removed from the MSCI Frontier Markets Small Cap Index with three constituents leaving. The most notable was FLC Faros Construction which was added to MSCI Frontier Markets Index and FTSE Vietnam Series in 2017 after its initial public offering in 2016, before being removed by the latter index compiler earlier this year in March.
The other countries that made up the remaining deletions were Morocco (2), Mauritius (2), Bahrain (1), Oman (1), Estonia (1), Kazakhstan (1) and Burkina Faso (1).
- Lesieur Cristal (Morocco)
- Residences Dar Saada (Morocco)
- Phoenix Power (Oman)
- AS Merko Ehitus (Estonia)
- KCell (Kazakhstan)
- FLC Faros Construction (Vietnam)
- Hagl (Vietnam)
- Viet Capital Securities (Vietnam)
- Lux Island Resorts (Mauritius)
- Sun (Mauritius)
- Coris Bank International (Burkina Faso)
MSCI also announced changes in two of its standalone indexes:
- Malta – there will be one addition (Malta International Airport) to the MSCI Malta Index and one addition (HSBC Bank Malta) to the MSCI Malta Small Cap Index.
- Iceland – there will be one removal from the MSCI Iceland Small Cap Index: Icelandair Group Holding.
All changes to the Indexes will take place as of the close of Friday 29th May 2020. Articles on previous MSCI Reviews can be found below: