Stocks added to MSCI Emerging Market Index
At its semi-annual review for May, MSCI made three major additions to its emerging market index. Effective 1st June, MSCI will add Indian Oil Corp Ltd of India (IOC), Novolipetsk Steel (NLMK) of Russia, and Bancolombia SA of Colombia (CIB).
Stocks that get included in the MSCI indices usually attract sizable fund flows. There are passive funds that track these inclusions to keep tabs on the overall market sentiment. Index weighting and composition is an important metrics for investors as fund managers and foreign investors try to mimic the index when allocating their funds and building their portfolios. Stocks that are included in the MSCI Index generally see higher allocation from foreign investors. The addition of stocks to major indices also increase their overall trading volumes and thereby their returns. Deletions, however, lead to declines in the stock’s returns.
Shares of Indian Oil Corporation advanced 2.8% over the past one month and have gained a whopping 34% YTD. Novolipetsk Steel has gained 6.2% over the past one month but has generated negative returns of 6.4% during the year so far. Meanwhile, Bancolombia’s ADR is up 20.7% YTD and 12.8% in the past one month.
Trading volumes of these stocks will likely surge once they are included in the index from June 1 onwards as hedge funds will buy into them to mimic the MSCI Emerging Market Index (EEM).