MSCI decides against including Israel in its Europe Index

Tel Aviv Stock Exchange credit: Shutterstock
Tel Aviv Stock Exchange credit: Shutterstock

The decision comes as a great disappointment to the Israeli capital market, which would have seen an influx of billions of dollars had MSCI reclassified Israel from Middle East to Europe.

Global indices company MSCI has announced that it will not include Israel in its leading European stock indices. The decision was made after the company carried out a survey of leading asset managers and other interested parties around the world. The factor that tipped the scales against Israel was the misalignment between trading days in Israel and in Europe. Israel's financial markets are open from Sunday to Thursday, whereas in Europe, markets are open from Monday to Friday.

The Israel Securities Authority did inform MSCI of its intention of adapting the trading week in Israel to European practice if the difference in trading days was a reason preventing Israel's accession to the indices, but it appears that the company ignored that declaration.

For the local capital market, the decision is a disappointment, as Israel's exclusion from European benchmark indices prevents international investment houses from investing billions of dollars in it. Accession to the MSCI European indices would have exposed Israel to a range of international investors whose presence could have generated considerable added value for Israel's capital market and its economy in general.

"The MSCI Europe Index, for example, has investment products to the tune of some $170 billion that track it, and Israel's weighting, if it is added, will be between 1% and 1.5%. That could have huge significance for the Israeli market," Adv. Offir Eyal, director of International Affairs and Business Development at the Israel Securities Authority, said in an interview with "Globes" in January.

Those most directly affected are the large Israeli companies that would have been added to the MSCI Europe Index (such as the major banks, Azrieli Group, ICL, Teva, Nice Systems, and Elbit Systems). In addition to them, about 100 Israeli companies stood to gain, as under the main Europe Index are secondary indices, such as the MSCI Europe Transportation Index, the MSCI Europe Infrastructure Index, the MSCI Europe Information Technology Index, and others, through which additional Israeli companies could have benefited from demand for their stocks.

MSCI said that the respondents to its survey, carried out between December 15 2021 and January 31 2022, were divided on the question whether Israel should be reclassified as part of the MSCI Europe Index or should remain part of the MSCI Europe and Middle East Index. Those in favor of reclassification said that Israel's continued Middle East classification meant that international investment bodies were less exposed to Israeli companies, and noted the strong correlations that had developed in recent years between Israel's macro-economic indicators and those of Europe. Those against mentioned the blurring of geographical demarcations that the move would involve, and also, as mentioned, the disparity between the Israeli trading week and the trading week in Europe.

Published by Globes, Israel business news - - on March 1, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Tel Aviv Stock Exchange credit: Shutterstock
Tel Aviv Stock Exchange credit: Shutterstock
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