LONDON- Slovakia entered the investment mainstream on November 3, joining Russia, Israel, Egypt and Morocco when these emerging markets were added to the key International Finance Corp (IFC) stock index.
However, the expansion of the IFC's Investable Composite Index was overshadowed by the global stock market turmoil, analysts said. "It's a bit of a red herring in today's market," said John-Paul Smith, Russian analyst at Morgan Stanley Dean Witter. "A far bigger effect will come from people reappraising their weightings in emerging markets as a whole."
The IFC, the private-sector affiliate of the World Bank, now has 31 constituents for its composite index, which is reviewed each year. This excludes Nigeria, which is tracked but not considered investable. The exact weightings for the five countries within the composite index will be announced later, Smith said. But using October 24 prices, Slovakia would have contributed a meagre 0.1 percent, while Russia would have had a weighting of 5.6 percent, Israel 2.4 and both Morocco and Egypt 0.8 percent, said Peter Wall, a senior IFC market analyst based in Washington.
Given last week's gyrations, the final weightings will be somewhat different, with Russia in particular set to have a lower weighting given the 17.5 percent fall in the Moscow market last week in dollar terms against an overall decline in the IFC composite of 11.1 percent.
Nevertheless, some 8.5 billion of funds track the index and the inclusion of the five countries means they will receive closer scrutiny from professional investors, some fund managers said, while adding in the same breath that the impact is likely to be muted by the fact that many funds have already positioned themselves ahead of the change, which was first announced in July.
"You might get a little fillip in the short-term but I think people generally take positions ahead of time," said Angus Blair, Middle East analyst at ING Barings. Dealers on the ground tended to agree.
"I don't think [the inclusion in the index] will bring in that many new investors," said Róbert Herbec, Head of Sales at Slovenská Sporiteľňa. "And if so, they will only invest in companies other foreign investors have been investing in so far, namely blue chips like Slovnaft, VSŽ, or perhaps Slovakofarma, due to their recent GDR issue. Otherwise, our market is not liquid enough."
However, Herbec agreed that the inclusion may be of some importance to Slovakia's capital market in the long run. "Despite a very insignificant weighting, the fact that Slovakia is among those countries included may catch some investor's eye, and we may get to taste some crumbs of the pie," Herbec said.
His Egyptian colleagues agreed. "This won't immediately affect the Cairo bourse but on the long run, it will enhance Egypt's investment profile," said Tarek Lofty of Intercapital in Cairo. But the simple fact that Slovakia's weighting is one eighth of that of Morocco or Egypt speaks more eloquently than mere words, according to Herbec. Asked whether the weighting is a sign of the Slovak market's irrelevance, he replied: "You got it."Daniel Borský contributed to this story.
