The removal of Russia from the MSCI Emerging Markets Index is expected to divert $1 billion in additional passive flows to Gulf countries, Kuwaiti asset manager Kamco Invest said on Tuesday.
Kamco said it expected Russia’s exclusion from the emerging markets index to increase the six-member Gulf Cooperation Council’s weight in the index to 5.96 percent from 5.73 percent at end-2021.
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“The increase in weight… is expected to attract additional passive flows to the tune of $1.0 billion, based on passive funds tracking the index of around $425 billion,” it said.
“In addition, with over 3x active funds, the actual flows to the GCC markets could easily exceed $3.0-3.5 billion, in our view,” Kamco said.
GCC trading activity has surged since the start of Russia’s invasion of Ukraine as funds reallocated funds out of Russia, the firm said.
Average daily value traded reached $3.1 billion from February 21 to March 7, compared to $1.9 billion between the start of the year and February 20, Kamco said.
MSCI’s EM index has declined 10.1 percent since the start of the year, Kamco said. The MSCI World Index is down 12.8 percent, with Europe 14.5 percent lower and the US shedding 11.9 percent.
A rise in Brazil and a smaller decrease in China, of 7.3 percent, “partially offsets the overall impact of a 41.3 percent decline in Russian equities” on the EM index, Kamco said.
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