FTSE grants Israel 'developed market' status

Israel won "developed" status from FTSE Group, enabling its stock market to attract more of the estimated $2 trillion in funds that track the index provider's global benchmarks.

"This is a positive," said Neil Corney, the Tel Aviv-based head of trading at Citi Israel, a subsidiary of Citigroup Inc. "It's going to mean that more international investors will be able to invest in Israel."

Pakistan was dropped from FTSE's global indexes on the grounds that it no longer meets the entry requirements, while Hungary and Poland were raised to "advanced emerging" status from "secondary emerging." South Korea is "very likely" to be reclassified a developed market at next year's review, FTSE Chief Executive Mark Makepeace said at a press briefing in Seoul.

Shares including Teva Pharmaceutical Industries Ltd and National Bank of Pakistan may be affected as investors who benchmark against the indexes buy or sell to reflect today's announced changes, which take effect from June 2008. Most funds are restricted to investing in developed markets because of their perceived lower risk.

Greece will stay on the so-called "watch list" for demotion from its developed status and a decision will be made on this in a year's time, it added.

$2 trillion tracking

An estimated $2 trillion to $2.5 trillion of funds track FTSE Indexes and of this "the vast majority" is linked to developed markets, Makepeace said.

MSCI Barra, which also provides equity benchmarks, says it has more than $3 trillion of funds linked to its gauges worldwide. Global assets connected with its developed-market indexes are as much as nine times those for the company's emerging-market measures, according to Seoul-based Woori Investment & Securities Co estimates.

The FTSE changes "may be foreshadowing what MSCI could do but they each have their own methodology," said Roberto Lampl, who helps manage $3 billion in emerging market stocks at ING Investment in Hague and used MSCI as his benchmark. "If the MSCI would decide to remove certain countries we would take action."

Israel took steps in the past two years to raise its profile among foreign investors and increase the perception that its $140 billion economy was ready for upgrade to developed status.

Foreign investment

Parliament in July 2005 ordered lenders including Bank Leumi Le-Israel Ltd, Israel's largest by assets, to get out of asset management to increase competition in financial services.

The stock exchange in March increased the minimum public holding required of its biggest listed companies to 25 percent from a float of 22.5 percent in a bid to increase trading volume and liquidity. The new requirement must be met by December 15.

The TA-25 index has almost tripled in the last four years, as the economy marks its fifth year of growth.

New foreign investment in exchange-listed securities in the first half of this year reached $967 million, compared with $2.1 billion for all of 2006, according to the Bank of Israel.

FTSE's requirements also include a wealth test, which Israel met as gross national income per capita rose to $18,620 in 2005. The World Bank classifies any country with "high" income to have GNI of at least $11,116.

Bloomberg News

(China Daily 09/21/2007 page16)