Annual Country Classification Review · 2015-06-22 · determining whether a market should be...

COUNTRY CLASSIFICATION

CONSULTATION

Annual Country Classification Review

Summary

S&P Dow Jones Indices is undergoing its annual country classification review and is consulting with the

investment community on the current standing of several countries. The S&P Dow Jones Global Equity

Index Series is divided into three major country classifications – developed, emerging, and frontier.

There are also other countries globally that are not included in those categories, and are considered as

“stand-alone” for index construction purposes. For each country, a number of factors are used in

determining this classification, both quantitative and qualitative in nature.

Additionally, the opinions and experiences of institutional investors are critically important in

determining whether a market should be classified as developed, emerging, or frontier. S&P Dow Jones

Indices responds to the institutional consensus by ensuring that the indices and associated data support

the investment approaches institutions want to employ.

S&P DJI is seeking your feedback on certain countries currently under review. To ensure that consensus

is obtained, please complete the questions included in this document and return to S&P Dow Jones

Indices Client Services. Your feedback is of utmost importance and may impact the country classification

for the S&P Dow Jones Global Equity Index Series in 2016. Please respond by August 21, 2015.

To participate in this consultation, please either email your feedback to S&P Dow Jones Indices at

[email protected] or click on the following link to the online version of this survey:

https://www.surveymonkey.com/r/38DPTCV.

Please be advised that all comments will be reviewed and considered before a final decision is made,

however S&P Dow Jones Indices makes no guarantees or is under any obligation to comply with any of

the responses. The survey may result in no changes or outcome of any kind.

Process

S&P Dow Jones Indices uses quantitative data to initially assess market eligibility for the developed,

emerging and frontier country classifications. Countries must meet certain initial criteria to be

considered for the S&P Developed, Emerging or Frontier indices; they must meet a certain number of

additional criteria to be considered specifically for the developed and emerging classifications, and must

withstand a final measure of country economic status to be classified as developed. The table below

summarizes these requirements.

[email protected]

https://www.surveymonkey.com/r/38DPTCV


CONSULTATION

S&P Dow Jones Indices Country Classification Requirements

Please review Appendix A at the end of this document for a detailed explanation of the criteria listed

below.

S&P Dow Jones Indices Country Classification Criteria Frontier Emerging Developed

Initial Eligibility Criteria

Full domestic market capitalization over $2.5B Minimum of two √

√ √

Domestic annual turnover value over $1B √ √

Exchange development ratio over 5% √ √

Additional Criteria

Full domestic market capitalization over $15B √ √

Settlement period of T+3 or better

Minimum of three √

√

Sovereign Debt rating of BB+ or above

√

Non-occurrence of hyperinflation

√

No significant foreign ownership restrictions

√

Freely traded foreign currency √

GDP Criteria

GDP (PPP) per capita greater than $15K √

√ - Required criterion

Please refer to the S&P Country Classification Methodology in the Supplemental Methodologies and

Market Section under policies of the S&P Dow Jones Indices website at www.spindices.com for further

information.

Frontier Markets

Unless there is significant data availability or accuracy issues, existing S&P DJI frontier market indices will

continue to be calculated even if they fail to meet the requirements detailed above.


CONSULTATION

Consultation

S&P DJI is seeking feedback on several countries below which have been identified as either potential

candidates for classification changes, or which warrant continued monitoring for possible future

changes in classification. General information about the markets is included below. Any feedback is

appreciated; please include any additional information in your response that may not have been

considered.

List of countries/markets under review:

China A-Shares

Russia

Ukraine

Greece

Saudi Arabia

Palestine

Zimbabwe


CONSULTATION

China A-Shares

Investment in China has expanded significantly over the past several years. Steady economic growth

rates and considerable appreciation in equity markets have generated a substantial appetite for global

investment.

The Chinese equity market is primarily comprised of two segments: A-Shares, traded on mainland

Chinese stock exchanges (Shanghai and Shenzhen) and H-Shares, listed in Hong Kong. Accessibility to A-

Shares was initially limited to local Chinese investors, but is slowly becoming available to foreign global

investors. H-Shares are investable for foreign investors; however, only a relatively small percentage of

all Chinese companies are covered.

Several years ago, China launched the qualified foreign institutional investor (QFII) and later the

renminbi qualified foreign institutional investor (RQFII) programs giving certain large financial

institutions limited access to invest in A-Shares. Over time, the size of these programs has increased and

restrictions have been loosened. RQFII has expanded to several jurisdictions including London,

Singapore, and others.

Late last year, in response to increased foreign interest, China launched the Shanghai-Hong Kong Stock

Connect program, which further expands the availability of Shanghai-listed A-Shares to foreign

investors. The program allows Hong Kong investors to trade A-Shares as well as for mainland Chinese

investors to trade Hong Kong-listed shares. The amount of investment is limited by overall quotas as

well as daily limits on the value of shares that can be traded. These limits may be increased as deemed

necessary by market regulators. The increased market accessibility has been welcomed and it is

expected that China will initiate a similar arrangement for Shenzhen-listed A-Shares later this year.

Although S&P DJI offers a wide range of China A-Share Indices and an alternative suite of Global and

Emerging Market benchmarks that include A-shares, A-Shares are currently not eligible for any of the

standard S&P Dow Jones Global Benchmark Indices. China is currently represented in SPDJI Global

Benchmark Indices through the S&P China BMI, which includes all share classes that are available to

foreign investors. As the significance of China in global investment portfolios expands and foreign

investability improves, S&P DJI is considering the appropriate course of action for inclusion in the Global

Benchmark Indices. The following information pertains to China as a whole, though this consultation

centers solely on A-Shares.

Year Full Domestic Market Capitalization ($B) Domestic Turnover Value ($B)

2014 5,538 12,402


CONSULTATION

Investor considerations:

Taxes: QFIIs and RQFIIS are subject to a 10% withholding tax on cash and stock dividends, as well as

interest earned on cash balances in foreign currency accounts. QFIIs and RQFIIs are exempt from taxes

on capital gains earned after November 17, 2014.

Regulatory Environment: The Chinese Securities Regulatory Commission (CSRC) reviews and enacts all

securities-related laws as well as oversees the local exchanges. The State Administration of Foreign

Exchange (SAFE) oversees foreign exchange transactions related to investment by QFIIs and RQFIIs.

Foreign Ownership Restrictions: QFIIs and RQFIIs are limited to 10% individual ownership limits in

companies and a 30% limit in aggregate across all such investors. These limits are monitored by the

exchanges and, if breached, local brokers and custodians are instructed to sell shares from investor

accounts that most recently exceeded the limits.

Investment Conditions: Prospective QFIIs and RQFIIs must submit an application to both the CSRC and

SAFE to obtain a securities investment license. Applicants must meet minimum requirements set by the

CSRC including assets under management, years of operation, and other criteria based on prudent

regulatory principles. Applicants then apply to SAFE through their sub-custodians for investment quotas

and foreign currency accounts. Investment quotas are allocated to QFIIs and RQFIIs by SAFE. QFIIs

should apply for a minimum quota of $50 million US up to a maximum of $1 billion US. RQFIIs do not

have a minimum. SAFE will notify applicants of their approval status within 20 working days of their

submission of all documentation, after which related currency and brokerage accounts can be opened.

Short selling is not allowed. Settlements of trades in A-Shares are in Chinese renminbi (CNY), which is

not freely convertible. The CSRC requires these currency transactions to be executed by sub-custodians

of QFIIs and RQFIIs through pre-approved CNY accounts. The sub-custodian must maintain minimum

reserve balances relative to the approved investment quota and periodically report these balances to

the China Securities Depository and Clearing Corporation Limited (CSDCC) on a monthly basis. Penalties

may be imposed on QFIIs and RQFIIs for not meeting the reserve requirements.

Substantial Shareholder Reporting: Investors are required to report holdings that exceed 5% share

ownership upon initial investment or when shareholding changes by 5% to the issuer, the stock

exchange, and the head and local CSRC offices. This ownership must also be disclosed in one of the

CSRC-designated newspapers within 3 days of the qualifying shareholding event. Trading in these

securities may be restricted for a period of time after these disclosures.

Stock Exchange: The Shanghai Stock Exchange is open Monday through Friday and begins with a

morning session call auction from 9:15 to 9:25, followed by a continuous auction from 9:30 to 11:30,

and finally, a similar afternoon session from 13:00 to 15:00. The Shenzhen Stock Exchange is also open

Monday through Friday from 9:30 to 11:30 and 13:00 to 15:00.


CONSULTATION

Settlement cycle and methods: Chinese A-Shares trades are settled on T+1 for cash and on T+0 for

securities. Stock exchanges submit information to the CSDCC on T, who then facilitates the cash

settlement process on a trade-by-trade basis.

Weight in S&P Dow Jones Indices:

Benchmark Index Current Weight

Projected Weight

S&P Emerging BMI (China non-A-shares) 31.14% 18.01%

S&P Emerging BMI (China overall w/ A-share inclusion at full weight) 60.16%

S&P Emerging BMI (China A-shares only at full weight) 42.15%

Given the uncertainty that remains around the evolution of the A-share market, should S&P DJI

take a “wait-and-see” approach and not include A-shares in any way in S&P DJI global benchmark

indices at this time?

Should A-shares be gradually phased into the existing S&P Emerging BMI indices using a weight

factor that increases over time? If so, what would be an appropriate weight factor to start with?

Should A-shares be included in a separate set of transitional indices, where they would be

assigned a weight factor that is based on the aggregate quota availability of A-shares relative to

the size (market capitalization) of the S&P Emerging BMI?

Alternatively, should each A-share stock in this transitional index be assigned a weight factor

based on whether or not it is available to trade through the Shanghai-Hong Kong Connect

program?

Are there any other approaches that would be suitable for including Chinese A-shares in S&P DJI

global benchmark indices?

Are the settlement process and/or tax law ambiguity major concerns for you?

Are there any additional concerns that remain before you would feel comfortable with the

inclusion of A-shares in S&P DJI benchmark indices?

If the A-shares market were to open substantially to foreign investors at some point, would you

be in favor of including A-shares in global benchmark indices more rapidly than at the normal

September annual index reconstitution?


CONSULTATION

Russia

Over the past 16 months, Russia has been involved in an ongoing conflict with neighboring Ukraine. The

international response to these events has been largely negative and as a result, there have been a

variety of sanctions placed on Russia by the United States, European Union, and other nations. The

sanctions have targeted certain key industries to the Russian economy and include the prohibition of

transacting in newly issued equity by certain Russian companies. These sanctions, along with falling oil

prices and a sharp decline in currency value, have had a significantly harmful impact on the Russian

economy and global investment in the country.

Russia is currently classified as an Emerging Market in all S&P Dow Jones Indices branded indices.


2014 359 211


Taxes: Non-resident investors are subject to a withholding tax rate of 15% on dividends but are exempt

from capital gains tax on the sale of equity. There may be additional tax implications for investments

due to the complex nature of the Russian tax law.

Regulatory Environment: The securities market is primarily regulated by the Central Bank of Russia

(CBR). They enforce foreign exchange regulations and work with other governmental agencies to

oversee most aspects of Russian financial markets.

Foreign Ownership Restrictions: Foreign investors must get approval from the Federal Anti-Monopoly

Service in order to acquire shares of a non-financial stock if certain asset levels or ownership thresholds

are reached. Approval requirements to acquire shares in financial stocks are stricter and measured by

asset levels for each type of institution. All investors must obtain approval from the CBR in order to

acquire up to 10% of a Russian bank. Lastly foreign investors are restricted from or require approval for

purchasing securities or companies related to national security as defined by several industries. All

restrictions on investors are monitored by the CBR and Federal Anti-Monopoly Service.

Investment Conditions: In order to open an investment account, investors must meet strict

documentation requirements proving they are a qualified legal entity. Many investors do not qualify as

legal entities in Russia despite being considered that way in their home jurisdictions. Short selling and

securities lending are not permitted. The opening and use of Russian ruble (RUB) accounts is subject to

strict requirements. Currency transactions are often settled offshore in US dollars.

Substantial Shareholder Reporting: Investors must notify the CBR once its ownership level reaches 5%

and when additional subsequent ownership thresholds are reached. Ownership of a Russian bank must


CONSULTATION

be reported once the 1% level has been reached. Certain individual companies can impose additional

investor requirements and any violation of these rules can result in substantial fines.

Stock Exchange: The Main market sector at the Moscow Exchange is open Monday through Friday from

9:30 to 19:00.

Settlement cycle and methods: Equity trades are cleared through the National Settlement Depository

(NSD) and settle on a T+2 basis. Trades settle at the end of the clearing cycle on a DVP/RVP basis.

Foreign institutional investor transactions are settled OTC and normally in US dollars.


Benchmark Index Current Weight Projected Weight

S&P Emerging BMI 4.03%

Given the uncertainty surrounding the Ukraine conflict and the impact of economic sanctions on

the Russian equity market, should Russian companies that are targeted by these sanctions be

removed from SP DJI global benchmark indices?


CONSULTATION

Ukraine

As mentioned above, Ukraine has been involved in conflict internally and with Russia since the beginning

of last year. The continuing conflict and political turmoil within Ukraine has had a large negative impact

on their economy. They have experienced high inflation, declining currency values, and a severe

contraction in economic output. The National Bank of Ukraine recently instituted capital controls to

attempt to minimize the effects of the unstable markets.

Ukraine is currently classified as a Frontier Market in all S&P Dow Jones Indices branded indices.


2014 8 .08

2013 15 .594


Taxes: Non-resident investors are subject to a 15% withholding tax on dividends and capital gains;

however, this may be reduced if the investor can produce documentation that there is an applicable

double taxation agreement in place.

Regulatory Environment: The National Bank of Ukraine (NBU) oversees the banking sector, payment

system, and T-bill market, while the Securities and Stock Market National Commission (SSMNC) enforces

rules in the securities market.

Foreign Ownership Restrictions: The Anti-Monopoly Committee (AMC) must approve foreign ownership

if foreign investors acquire 25% or 50% of a company with a certain asset value as well as any acquisition

involving a company with a monopoly position. Foreign investors’ holdings are limited for companies in

television and radio broadcasting, banks, and companies involved in the manufacturing of weapons or

alcohol.

Investment Conditions: Investors are required to execute a custody agreement with the local custodian

after providing appropriate documentation. Short selling is not allowed. Transactions in Ukrainian

hryvna must occur through a licensed local bank. Foreign investors must provide proof of currency

conversion in order to repatriate any sales proceeds.

Substantial Shareholder Reporting: The National Depository of Ukraine (NDU) and local custodians must

report ownership positions exceeding 10% to the SSMNC. Investors must also notify the NBU if certain

ownership levels are reached in local banks. Failure to comply with these requirements can result in a

penalty of 10% of the value above the limits specified.

Stock Exchange: The Ukrainian Exchange is open Monday through Friday from 10:30 to 17:00.


CONSULTATION

Settlement cycle and methods: Trades are settled through the central securities depository and require

documentation that contains the specific settlement terms negotiated between the investor and local

broker. Foreign investors settle transactions free of payment with cash settlement taking place offshore.



S&P Frontier BMI .643%

Given the adverse effects of the conflict on the Ukrainian markets and the measures that have

been taken by the National Bank of Ukraine, should Ukraine be classified as a Frontier or stand-

alone market?


CONSULTATION

Greece

Over the past several years Greece has experienced political and economic instability dating back to the

global financial crisis which today threatens its continued membership in the Euro Zone. Over that time,

the Greek economy has suffered from high unemployment and economic contraction which has led to a

debt crisis that ultimately required multiple financial bailouts.

The effects of the situation continue to be felt in Greece, throughout the Euro Zone, and globally by

many types of investors. The uncertainty around the future direction of the country and region pose

not-insignificant risks to market participants. Failure to amenably solve their debt crisis could lead to

capital controls which would further harm the country’s markets.

In 2014, Greece was re-classified from Developed Market to Emerging Market status in S&P Dow Jones

Indices branded indices. where it currently remains.


2014 54 41


Taxes: Investors are subject to 10% withholding tax on dividend payments, though payments from

companies in certain industries are exempt. Capital gains on listed equities in general are subject to 15%

tax but are tax exempt if the investor holds less than .5% of the listed shares of the company. Taxes may

be reduced if the investor is a resident of a country that has an applicable double taxation agreement.

Regulatory Environment: The Government Commissioner is appointed by the Ministry of Finance and

monitors stock market compliance. The Capital Markets Commission (CMC) operates under the

supervision of the Ministry of Finance as well and is in charge of investor protection and the facilitation

of the proper functioning of securities markets. The European Central Bank (ECB) has general oversight

of financial system in the Eurozone of which Greece is a member.

Foreign Ownership Restrictions: Some restrictions apply to foreign investors based on the industry that

companies are involved in. Non-European Union (EU) investors may be subject to ownership limits of

securities in the media, shipping, airline and mining sectors. Additional restrictions may apply to banks

and certain other financial institutions.

Investment Conditions: There are no requirements for foreign investors to gain access to the Greek

markets. Covered short selling is allowed. Currency controls do not apply.

Substantial Shareholder Reporting: Investors are required to report to the company, the CMC, and the

stock exchange if a transaction will cause their ownership to exceed or fall below certain thresholds. If


CONSULTATION

an investor is legally defined as a financial institution, detailed information must be disclosed to the

Bank of Greece. Additional reporting requirements exist for investors in certain companies in the

financial sector. The Bank of Greece monitors these limits using reports from custodian banks and

reserves the right to impose sanctions for violators.

Stock Exchange: The Athens Stock Exchange is open Monday through Friday from 10:15 to 17:20.

Settlement cycle and methods: Equities are settled on a T+3 basis.



S&P Emerging BMI .48% S&P Frontier BMI 9.63%

Should Greece be classified as a Frontier or Emerging market?


CONSULTATION

Saudi Arabia

Foreign investment in the Saudi Arabian stock market has been almost entirely restricted throughout

history. Recently, however, the country has announced its decision to gradually allow more international

investment and provide access to its capital market. This year, they will implement rules that permit

qualified foreign investors (QFIs) to purchase limited amounts of stock in Saudi companies. Saudi Arabia

is already a large and liquid market, and as restrictions are loosened and policies become well-defined,

there should be a surge in international capital flows to the market.

Saudi Arabia is currently classified as a stand-alone market in all S&P Dow Jones Indices branded indices.


2014 482 441


Taxes: Non-resident investors are subject to a 5% withholding tax on dividends and income. Capital

gains are tax-exempt.

Regulatory Environment: The Capital Market Authority (CMA) regulates the market and reports directly

to the Prime Minister. Board members are appointed by a royal order and are authorized to regulate

and develop the capital market and to protect participants.

Foreign Ownership Restrictions: Financial instruments listed on the stock exchange may be traded only

by Saudi citizens, non-Saudi citizen residents, Saudi corporations and institutions, and citizens of the

Gulf Cooperation Council (GCC). The maximum allowed direct ownership by GCC nationals is 5%

individually and in aggregate 25%. Each trade is monitored by the exchange trading system.

Currently, foreign investors have limited opportunities to invest through equity-based mutual funds

managed by local banks and a small number of exchange-traded funds. A single investor is not allowed

to own more than 10% of the total value of a mutual fund.

As previously mentioned, a framework for increased foreign investment has recently been announced.

As the year progresses, the structure developed by the CMA will be implemented and markets will

become more accessible for foreign investors.

Investment Conditions: Each investor must obtain approval from the CMA prior to investing in Saudi

Arabia. The approval process takes 20 to 30 business days after all required documentation is received.

Stock lending and short selling are not permitted in the market. Currency controls do not apply in Saudi

Arabia.


CONSULTATION

Substantial Shareholder Reporting: Ownership that reaches or exceeds 5% must be reported to the

company and CMA.

Stock Exchange: The Saudi Stock Exchange (Tadawul) is open Sunday through Thursday from 11:00 to

15:30.

Settlement cycle and methods: Settlement time for transactions at Tadawul is T+0. Trades are settled

instantaneously using electronic systems.

Weight in S&P Dow Jones Indices: Saudi Arabia currently resides outside of both the S&P Frontier BMI

and S&P Emerging BMI indices due to foreign ownership restrictions. If the availability of Saudi stocks

from a GCC perspective is used to judge the size of Saudi Arabia, it would rank 7th out of 24 markets

based on size in the S&P Emerging BMI and would represent approximately 4.51% of the index.


S&P Emerging BMI 4.51%

Should Saudi Arabia be classified as an Emerging market or continue to be stand-alone? If stand-

alone, what changes need to take place in order to warrant the inclusion of Saudi Arabia into

emerging market indices?

What are the remaining concerns regarding foreign investment in Saudi Arabia?

If the Saudi market were to open substantially to foreign investors at some point, would you be in

favor of including these shares in global benchmark indices more rapidly than at the normal

September annual index reconstitution?


CONSULTATION

Palestine

Palestine is currently classified as a stand-alone market in all S&P Dow Jones Indices branded indices.


2014 2.99 .247


Taxes: There is no withholding tax on foreign investments, and dividends and capital gains are not taxed

regardless of the domicile of the shareholder.

Regulatory Environment: Palestine developed the legal structure of the securities sector in 2005, and as

a result, the operations of the Palestinian Exchange are supervised by the Capital Market Authority

(CMA).

Foreign Ownership Restrictions: No significant foreign ownership limitations exist. Foreign ownership is

monitored by the Clearing, Depository and Settlement system and limits may be imposed by issuing

companies themselves. These limits are monitored and enforced by the Palestinian Exchange.

Investment conditions: Investors must obtain a unique shareholder number by providing proof of legal

existence. The USN is required for all activity in the market. Short selling is not allowed in the market.

Currency controls do not apply as Palestine does not have its own currency. All securities transactions

are settled in JOD or USD. Third party and offshore transactions are permitted for Jordanian dinar.

Substantial Shareholder Reporting: Shareholders must notify the Capital Market Authority within seven

business days of owning 10% of more in any company. The Palestinian Exchange requires ownership

disclosure for all account holders, which is tracked through each investor’s USN.

Stock Exchange: The Palestinian Exchange is open for trading Sunday through Thursday from 09:45 to

13:30. Securities are quoted in either Jordanian dinar or US dollars depending on the issuer’s

capitalization currency.

Settlement cycle and methods: Settlement occurs on T+2.




Should Palestine be classified as a Frontier market or continue to be stand-alone?


CONSULTATION

Zimbabwe

Zimbabwe is currently classified as a stand-alone market in all S&P Dow Jones Indices branded indices.


2014 4.13 .19


Taxes: Withholding tax on dividends is 10% on listed shares and 15% on unlisted securities. Foreign

investors are also subject to a 1% capital gains tax for listed securities and 5% for unlisted securities.

Regulatory Environment: The Zimbabwe Stock Exchange is regulated by the Ministry of Finance as well

as the Securities Commission.

Foreign Ownership Restrictions: Aggregate foreign ownership in any one company is limited to 40%, with

a 10% limit per shareholder. These limits are monitored are monitored by companies in coordination

with the stock exchange.

Investment conditions: Gaining access to securities markets is not difficult for investors. Securities

lending and short selling are not permitted. The Zimbabwean dollar has been withdrawn from

circulation due to hyperinflation. All transactions are conducted in USD. Capital can be freely repatriated

without approval, and foreign investors can transfer foreign currency through normal banking channels

for securities transactions.

Substantial Shareholder Reporting: No significant requirements exist.

Stock Exchange: The Zimbabwe Stock Exchange is open for trading from 10:00 to 11:30 from Monday

through Friday using a call-over system, and transactions are executed in US dollars.

Foreign Investor requirements: No significant requirements for foreign investors exist.

Settlement cycle and methods: Securities transactions settle on a T+5 basis.




Should Zimbabwe be classified as a Frontier market or continue to be stand-alone?


CONSULTATION

Appendix A

Initial Criteria for S&P Dow Jones Global Equity Index Series Eligibility

Countries must meet a minimum of two of the following three criteria to be considered for inclusion in

the S&P Dow Jones Country Indices:

Full domestic market capitalization over US$ 2.5bn.

Market size is important. S&P Dow Jones Indices uses the full market capitalization of an exchange’s

primary market as its measure. Float-adjusted capitalization is not used, as the availability of float

information for smaller markets is not of the required standard. Thus, we do not have consistency of

float information across all markets.

Annual turnover value over US$ 1B.

An exchange must have significant turnover so that trading is unlikely to be characterized by a particular

difficulty in trading. S&P Dow Jones Indices ascertains the total value of trading in a market’s domestic

companies over the calendar year prior to the review.

A market development ratio over 5%.

Many countries have very small markets that do not provide a sufficiently robust representation of the

domestic market economy. To ensure only markets that have developed sufficiently are used, S&P Dow

Jones Indices calculates a “market development ratio” by dividing the full domestic market capitalization

of the exchange by the country’s GDP at purchasing power parity, sourced from the IMF. To be

considered for the S&P Country Indices, this figure must be over 5%.

Additional Requirements for S&P Emerging Market Status

Countries must meet all three of the baseline criteria as well as have a full market capitalization over

US$ 15bn, and must meet a minimum of three of the following five criteria to be considered for

emerging market status:

Settlement period of T+3 or better

Efficient, rapid settlement of trades is necessary for investors to be able to trade with confidence. S&P

Dow Jones Indices requires markets to settle trades on a T+3 timescale or sooner.


CONSULTATION

Major Ratings Agencies rate the sovereign debt at investment grade

A company’s ability to operate is directly affected by its home country’s financial situation. Standard &

Poor’s Ratings Services has a team devoted to the analysis of country risk, and its rating of each

country’s sovereign debt is used to ensure an appropriate level of risk.

Non-occurrence of hyperinflation

Hyperinflation is defined here as an annual average consumer price index rate of over 15% at the time of

the review.

No significant foreign ownership restrictions

Foreign ownership restrictions cause issues achieving the required exposure to stocks in a given market.

While S&P Dow Jones Indices recognizes that stocks in industries such as defense are commonly

restricted, it uses the State Street Global Market Information Database to assess whether additional

restrictions might cause investing issues.

The country’s currency should be freely traded

Difficulties buying or selling a domestic currency, or repatriating capital from a market, hugely

complicates the process of investing in a given market. S&P Dow Jones Indices uses the State Street

Global Market Information Database to assess whether there any currency restrictions in place in each

market.

Further Requirements for S&P Developed Market Status

To be considered for developed market status, countries must meet all eight of the initial and additional

criteria and have a Gross Domestic Product per capita, at Purchasing Power Parity, greater than US$

15,000.

Deviations from Baseline

Where this assessment indicates a possible change of classification, a more in-depth study is undertaken

which covers both the primary and additional criteria, as well as the following quantitative and

qualitative areas:


CONSULTATION

Economic & Political

Further macroeconomic measures, such as the rate and variability of real GDP growth and the

overall size of the economy

Political factors including war, civil disruption, and disturbance, as well as the risk of war or civil

unrest

Restrictions on investments imposed by other governments

Related Investment Conditions

Settlement procedures

Foreign exchange (FX) access and procedures

Rules on short sales, availability of futures contracts, etc.

Availability of alternative means of investment in the country’s stocks, such as DRs or a large

number of listings on other markets in other countries

The number of domestic listings

Market Consensus

Desire for change

o There must be a market consensus desiring the change of the country’s classification.

The actions of other market participants

o S&P Dow Jones Indices’ staff is in constant contact with the investor community, and

regularly canvases opinions concerning new countries of interest and issues of concern

regarding existing S&P Dow Jones Global Equity Index countries.

o The actions of other index providers are relevant. All index providers attempt to

incorporate the views of the investor community when assessing markets for country

classification purposes. Changes to country classifications reflect changes in the

sentiment of both that provider’s customers and the broader market.

Sources:

State Street – Guide to Custody in World Markets

S&P Sovereign Debt Ratings

IMF website

World Bank website

Stock Exchange websites


CONSULTATION

Appendix B

Country weights in SPDJI benchmark indices as of June 1, 2015:

S&P Developed BMI

S&P Emerging BMI

S&P Frontier BMI

Country Weight

Country Weight

Country Weight

Australia 2.59%

Brazil 7.26%

Argentina 14.66%

Austria 0.12%

Chile 1.60%

Bahrain 2.80%

Belgium 0.52%

China 31.14%

Bangladesh 3.66%

Canada 3.60%

Colombia 0.92%

Botswana 0.92%

Denmark 0.64%

Czech Republic 0.17%

Bulgaria 0.28%

Finland 0.36%

Egypt 0.37%

Cote d'Ivoire 0.88%

France 3.40%

Greece 0.48%

Croatia 1.64%

Germany 3.09%

Hungary 0.21%

Cyprus 0.21%

Hong Kong 1.49%

India 10.71%

Ecuador 0.69%

Ireland 0.24%

Indonesia 2.58%

Estonia 0.32%

Israel 0.32%

Malaysia 3.25%

Ghana 0.46%

Italy 1.03%

Mexico 4.78%

Jamaica 0.53%

Japan 9.72%

Morocco 0.19%

Jordan 3.92%

South Korea 1.85%

Peru 0.55%

Kazakhstan 2.81%

Luxembourg 0.10%

Philippines 1.80%

Kenya 4.09%

Netherlands 1.10%

Poland 1.55%

Kuwait 17.37%

New Zealand 0.10%

Qatar 0.79%

Latvia 0.06%

Norway 0.32%

Russia 4.03%

Lebanon 2.54%

Portugal 0.07%

South Africa 7.50%

Lithuania 0.22%

Singapore 0.60%

Taiwan 14.76%

Mauritius 1.69%

Spain 1.21%

Thailand 2.85%

Namibia 0.36%

Sweden 1.20%

Turkey 1.64%

Nigeria 11.92%

Switzerland 3.32%

UAE 0.87%

Oman 3.80%

UK 7.64%

Pakistan 7.12%

US 55.37%

Panama 3.34%

Romania 2.27%

Slovakia 0.12%

Slovenia 1.74%

Sri Lanka 2.56%

Trinidad & Tobago 1.64%

Tunisia 0.74%

Ukraine 0.64%

Vietnam 3.69%

Source: S&P Dow Jones Indices Zambia 0.33%


CONSULTATION

S&P/IFCI Composite Index

Dow Jones Developed Markets Index

Dow Jones Emerging Markets Index

Country Weight

Country Weight

Country Weight

Brazil 6.41%

South Korea 1.92%

Qatar 0.78%

Chile 1.40%

Austria 0.12%

UAE 0.85%

China 26.96%

Australia 2.57%

Brazil 7.12%

Colombia 0.74%

Belgium 0.52%

Chile 1.61%


Canada 3.57%

Colombia 0.90%

Egypt 0.30%

Switzerland 3.25%

Peru 0.55%

Greece 0.42%

Israel 0.34%

Hungary 0.21%

Hungary 0.18%

Luxembourg 0.10%

Turkey 1.73%

India 9.07%

Germany 3.05%

Russia 4.04%

Indonesia 2.20%

United States 55.55%

Poland 1.66%

South Korea 14.06%

Denmark 0.64%


Malaysia 2.71%

Spain 1.19%

Egypt 0.44%

Mexico 4.22%

Finland 0.36%

Morocco 0.21%

Morocco 0.15%

France 3.37%

China 30.21%

Peru 0.45%

United Kingdom 7.57%

India 10.97%

Philippines 1.55%

Hong Kong 1.51%

Greece 0.48%

Poland 1.25%

Ireland 0.24%

Indonesia 2.75%

Qatar 0.69%

Italy 1.02%

Mexico 4.57%

Russia 3.54%

Japan 9.72%

Malaysia 3.45%

South Africa 6.55%

Netherlands 1.09%

Philippines 1.87%

Taiwan 12.47%

Norway 0.31%

Thailand 3.05%

Thailand 2.42%

New Zealand 0.10%

Taiwan 15.00%

Turkey 1.38%

Portugal 0.07%

South Africa 7.36%

UAE 0.73%

Sweden 1.20%

Singapore 0.62%

Source: S&P Dow Jones Indices


CONSULTATION

Dow Jones Developed Markets Total Stock Market

Index

Dow Jones Emerging Markets Total Stock Market Index

Dow Jones Frontier Markets Total Stock Market Index

Country Weight

Country Weight

Country Weight

Austria 0.11%

Qatar 0.78%

Argentina 14.132%

Australia 2.60%

UAE 0.85%

Bangladesh 5.104%

Belgium 0.49%

Brazil 7.12%

Bulgaria 0.208%

Canada 3.61%

Chile 1.61%

Bahrain 2.706%

United States 54.99%

Colombia 0.90%

Cyprus 0.212%

Switzerland 3.39%

Peru 0.55%

Estonia 0.336%

Germany 3.11%

Hungary 0.21%

Croatia 1.473%

Denmark 0.64%

Turkey 1.73%

Jordan 4.248%

Spain 1.22%

Russia 4.04%

Kenya 4.475%

Finland 0.35%

Poland 1.66%

Kuwait 17.172%

France 3.46%


Kazakhstan 2.553%

United Kingdom 7.71%

Egypt 0.44%

Lebanon 2.604%

Hong Kong 1.51%

Morocco 0.21%

Latvia 0.059%

Ireland 0.23%

China 30.21%

Sri Lanka 3.061%

Israel 0.30%

India 10.97%

Lithuania 0.219%

Italy 0.99%

Greece 0.48%

Macedonia 0.092%

Japan 9.89%

Indonesia 2.75%

Malta 0.450%

South Korea 1.92%

Mexico 4.57%

Mauritius 1.528%

Luxembourg 0.10%

Malaysia 3.45%

Nigeria 12.695%

Netherlands 1.12%

Philippines 1.87%

Oman 4.581%

Norway 0.27%

Thailand 3.05%

Pakistan 8.869%

New Zealand 0.11%

Taiwan 15.00%

Romania 2.350%

Portugal 0.07%

South Africa 7.36%

Serbia 0.225%

Sweden 1.17%

Slovenia 1.782%

Singapore 0.63%

Slovakia 0.138%

Tunisia 0.777%

Ukraine 0.656%

Vietnam 7.294%

Source: S&P Dow Jones Indices

Annual Country Classification Review · 2015-06-22 · determining whether a market should be...

Documents

Transcript of Annual Country Classification Review · 2015-06-22 · determining whether a market should be...