Saudi Arabia and Argentina are 'likely to see at least a temporary boost to their performance' after MSCI's decision to elevate them to the emerging market index, UBS has said in a research report.
The report noted: 'The typical historical record is that new market entrants tend to rally (and usually outperform) on the announcement that they will join the index and then sell off when they actually join the index around 12 months later.'
The inclusion marks a significant comeback for Argentina, which lost its EM status nine years ago and was subsequently demoted to frontier market status. UBS said it expects the country to experience a break from 'the less than positive news flow that the market has faced in recent months'.
Previously considered a standalone market, Saudi Arabia was one of the worst performers in 2017. This year, however, Saudi market performance has risen from 3.5% to 20.5%.
The report also said that MSCI is keeping a close eye on Kuwait, which may also be up for a promotion from frontier market to EM status.