In its Market Classification Review for 2020, index compiler Morgan Stanley Capital International (MSCI) confirmed that Iceland will be upgraded from Standalone Market status to Frontier Market status.
MSCI stated that the removal of capital controls, including the Special Reserve Ratio, had aided Iceland’s push into the Frontier Markets category. While certain reporting requirements for fund repatriation remain in place, feedback from market participants concluded that these barriers immaterially affect that accessibility of the Icelandic equity market for international institutional investors. Iceland was on MSCI’s “watch list” for potential reclassification since last year.
Icelandic securities will be included in the MSCI Frontier Markets Indexes in one step during the MSCI May 2021 Semi-Annual Index Review.
There will be two securities included in the MSCI Frontier Markets Index: food processing company Marel and banking group Arion Banki. Both companies will comprise of an estimated aggregate weighting of 5.24% in the Index (excluding Kuwait), with the former commanding a larger position. This will make Iceland the fourth largest country constituent in the Index after Vietnam, Morocco and Nigeria, although this is subject to change if Turkey and Argentina are demoted from the Emerging Markets category to Frontier Markets category.
Nine Icelandic securities will also be added to the MSCI Frontier Markets Small Cap Index. The list is as follows:
- Brim (Consumer Staples)
- Hagar (Consumer Staples)
- Siminn (Communication Services)
- Festi (Consumer Discretionary)
- Reitir Fasteignafelag (Real Estate)
- Reginn (Real Estate)
- EIK Fasteignafelag (Real Estate)
- Eimskipafelag Islands (Industrials)
- Vatryggingafelag Islands (Financials)
Icelandic Air Group will not be included in either Index after it was removed from the MSCI Iceland Small Cap Index last month.
A recent poll by Frontier Market News (@frontiermktnews) saw the majority of respondents believed that Iceland should be promoted to a Frontier Market (64.3%), while 28.6% did not believe it should be reclassified. Only 7.1% selected “Not Yet”, implying that there was still more work to be done before it was included in the MSCI Frontier Markets Index.