United Arab Emirates and Egypt stocks may gain as Vanguard Group Inc., the largest U.S. mutual-fund provider, switched to FTSE Group after dropping MSCI Inc. (MSCI) as a benchmark for funds with about $537 billion in assets, EFG- Hermes Holding SAE said.
The change, which includes a $67 billion emerging-markets fund, will probably lure investors into the U.A.E. as the Persian Gulf country has emerging-market status at FTSE and frontier at MSCI, according to Julian Bruce, the Dubai-based director of institutional sales trading at EFG-Hermes. The U.A.E. comprises 0.34 percent of FTSE’s EM index. Egypt’s benchmark gauge, the best performer globally this year, may benefit from the move as it has a weighting of 0.51 percent in FTSE’s EM index compared with 0.36 percent in MSCI.
“The news that one of the largest EM ETFs 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.”
Trading volumes in the U.A.E. have plummeted as Europe’s debt crisis trimmed the appetite for riskier assets. About 164 million shares were traded in Dubai yesterday, compared with a peak of 835 million in March. The U.A.E. failed for a fourth year to secure an upgrade at MSCI to emerging-market status in June, citing market accessibility issues.
Equities in the U.A.E. are valued at $108 billion while those in Egypt are worth $69 billion. Dubai’s DFM General Index (DFMGI) has rallied 19 percent so far this year, making it the best- performing stock market in the Gulf Cooperation Council. (BGCC200) Abu Dhabi’s ADX General Index (ADSMI) rose 10 percent in the period, while Egypt’s EGX30 Index (EGX30) has surged 55 percent, outperforming 90 global indexes tracked by Bloomberg.
Vanguard will adopt benchmarks from FTSE for six international stock index funds, and benchmarks 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.