Consultation on Proposed Changes
to the MSCI Frontier Markets 100
Index Methodology
March 2014

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Background and Proposal On June 11, 2013, MSCI announced its decision to reclassify the MSCI Qatar and MSCIUAE Indices from Frontier Markets to Emerging Markets coinciding with the May 2014
Semi-Annual Index Review
 Currently the MSCI Frontier Markets 100 Index (FM 100 Index) includes 24 securities
from Qatar and UAE, which represent a cumulative weight of 35% in the FM 100 Index
 The reclassification of the MSCI Qatar and MSCI UAE Indices is expected to significantlyddecreasetheh pooll off potentiall FM 100 Index
d constituents. In addition,dd
once thehreclassification takes place, the FM 100 Index may exhibit high country concentration
 To address these issues, MSCI proposes changing the parent index for the FM 100 Index
from the MSCI Frontier Markets Index (FM Index) to the MSCI Frontier Markets IMI (FMIMI), as well as applying a cap on the weight of the two largest countries in the FM 100
Index
 MSCI welcomes feedback from the investment community on the proposed
methodologicalh d ll changeshbby Marchh 24, 2014 andd willll communicate its ffinall ddecisionshortly thereafter This consultation may or may not lead to any changes to the MSCI Indexes©2014 MSCI Inc. All rights reserved.

msci.com2

Current and Proposed Methodology
Current methodology

Proposed methodology

FM
Index

FM IMI
Additional investability requirements

Additi
Additionall investability
it bilit requirements
i
t
•
•

•

12-month ATVR: Minimum 10%•

More stringent minimum foreign room requirement•

Maximum country weight = 50%

12-month ATVR: Minimum 10%

More stringent minimum foreign room requirement•

More stringent free float market cap. requirement (*)•

Cap on theh weight
h off theh two largest
lcountries = 40%

FM 100Index

FM 100Index

Target number of stocks = 100

Number of stocks between 85 and 115

Minimum = 90 (if less than 100 eligible stocks)(*) defined on page 5©2014 MSCI Inc. All rights reserved.

msci.com3

Details on the Proposed Changes
1) Change in the parent index
 Due to the planned reclassification of the MSCI Qatar and MSCI UAE Indices to Emerging Markets,
the pool of securities potentially eligible for inclusion to the FM 100 Index will decrease Therefore, MSCI proposes to change the parent index for the FM 100 Index from the MSCI FM
Index to the MSCI FM IMI
 With this change, the constituents of the MSCI FM Small Cap Index would be added to the pool ofpotential FM 100 Index constituents, which would result in a significant increase of this pool: The MSCI FM Index has 143 constituents (*)
 The MSCI FM Index excluding Qatar and UAE has 120 constituents (*)
 The MSCI FM IMI excluding Qatar and UAE has 339 constituents ((*))((*)) as of Januaryy 31,, 2014©2014 MSCI Inc. All rights reserved.

msci.com4

Details on the Proposed Changes (continued)
2) More stringent investability requirements
 In conjunction with the proposed change in the parent index for the FM 100 Index to the FM IMI,
more stringent investability requirements could be applied in the FM 100 Index so that only
sizable FM IMI constituents may be included in the FM 100 Index
 MSCI proposes to apply a more stringent free float-adjusted market capitalization requirement
for inclusion of securities in the FM 100 Index, compared to the requirement currently applied forinclusion of securities in the FM IMI
IMI. This would aim to enhance the overall investability of the
FM 100 Index
 The threshold would be derived as follows:o First, the securities in the FM IMI would be sorted in descending order of free float-adjusted market
capitalization and the cumulative free float-adjusted market capitalization coverage would be calculated ateach securityo Second, when the cumulative coverage of 80% of the sorted FM IMI is achieved, the free float-adjusted
market capitalization of the security at that point would define the thresholdo At each Index Review, this threshold would be updated using the same process Based on data as of Jan. 31, 2014, the minimum free float-adjusted market capitalization
requirement would be USD 240 milliono This corresponds to approximately 3 times and 6 times the requirement currently applied in the FM IMI for
Larger FMs (USD 81 million) and Smaller FMs (USD 41 million), respectively©2014 MSCI Inc. All rights reserved.

msci.com5

Details on the Proposed Changes (continued)
3) Cap on the weight of the two largest countries
 The reclassification of the MSCI Qatar and MSCI UAE Indices to Emerging Markets are expected tosignificantly increase the country concentration level in the FM 100 Index
 The two largest countries (Kuwait and Nigeria) would have a simulated cumulative weight of
more than 53% in the FM 100 Index (based on the proposed methodology)
 In order to limit the country concentration, MSCI proposes to introduce a 40% cap to the
cumulative weight of the two largest countries in the FM 100 Index
o If the cumulative weight is above 40% at the time of an Index Review, MSCI would reduce the weight ofeach constituent security in the two countries in order to reach 40%
o The weightg of all the other countries in the FM 100 Index would increase accordingly
gy©2014 MSCI Inc. All rights reserved.

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Details on the Proposed Changes (continued)4) Allow the number of constituents to fluctuate
 In order to better reflect changes in the investable universe for the FM 100 Index, MSCI proposes
to allow the number of constituents in the FM 100 Index to fluctuate within a target range
 MSCI proposes to allow the number of constituents to fluctuate between 85 to 115. Hence, ateach Index Review, the following treatment would be applied:o If the number of constituents resulting from the application of the proposed FM 100 methodology isbbetween85 andd 115, no adjustments
dj
would
ld b
be necessaryo If the number of constituents resulting from the application of the proposed FM 100 methodology is lessthan 85, adjustments would be made to bring the pro forma index to exactly 85 constituentso If the number of constituents resulting from the application of the proposed FM 100 methodology is morethan 115, adjustments would be made to bring the pro forma index to exactly 115 constituents Currently, the FM 100 Index targets exactly 100 constituentso A lower number of constituents is possible (minimum 90) only if the number of eligible securities forpotential inclusion in the FM 100 Index decreases below 100
p©2014 MSCI Inc. All rights reserved.

msci.com7

Potential Impact of the Proposal – Index Level
Simulated FM 100 Index Additions, Deletions, Market Capitalization and Turnover
Simulated Index
One Wayy
Index
Index
Mkt Cap Turnover

Current# Sec.

Add

Del# Sec.

Current Methodology

101

11

22

90

83,842

34.6%

Proposed Methodology

101

24

27

98

90,33935.1%

Note: All market caps are in USD millions. Data as of the close of January 31, 2014

 Based on a simulation using the current FM 100 Index methodology, the reclassification of the
MSCI Qatar and MSCI UAE Indices to Emerging Markets would decrease the number of eligible
securities forf theh FM 100 Index
d to 87, hhence theh minimum off 90 constituents would
ld apply.
l Based on a simulation using the proposed FM 100 Index methodology, the FM 100 Index would
consist of 98 securities, i.e. within the allowed 85 to 115 range. Hence, no adjustments would benecessary.
 The cap applied on the weight of the two largest countries under the proposed FM 100 Index
methodology would not impact the Index Market Capitalization and One Way Index Turnover forthe simulated FM 100 Index. Only the country weights would be impacted (see next page).

©2014 MSCI Inc. All rights reserved.

msci.com8

Potential Impact of the Proposal – Country Level
Simulated Country Additions, Deletions and Weights for the FM 100 Index

Country
KuwaitNigeria
Pakistan
Oman
Argentina
Kenya
MoroccoKazakhstan
VietnamBangladesh
Romania
Sri Lanka
Mauritius
JordanBahrainEstonia
SerbiaSlovenia
Bulgaria
Lithuania
Ukraine
Qatar
UAE
Total

Current Index

Simulated Index - Current meth.

Simulated Index - Proposed meth.

# Sec
Sec.
8
11
9
8
6
5
4
3
6
4
4
2
2
3
0
1
1
1
0
0
1
13
9
101

Add
0
1
3
0
0
0
1
0
2
0
0
0
0
0
0
0
0
0
1
2
1
0
0
11

Add
8
5
1
5
1
0
0
0
2
1
0
0
0
0
1
0
0
0
0
0
0
0
0
24

Weight
20.6%
13.2%
4.3%
3.4%
4.1%
3 8%
3.8%
3.6%
3.2%
2.1%
1.4%
1.5%
1 4%
1.4%
1.1%
0.7%
0.0%
0.3%
0.2%
0 2%
0.2%
0.0%
0.0%
0.1%
18.2%
16.4%
100.0%

Del
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
13
9
22

# Sec
Sec.
8
12
12
8
6
5
5
3
8
4
4
2
2
3
0
1
1
1
1
2
2
0
0
90

Weight
30.8%
20.3%
6.8%
5.1%
6.0%
5 5%
5.5%
6.2%
4.7%
3.9%
2.1%
2.3%
2 1%
2.1%
1.7%
1.1%
0.0%
0.5%
0.3%
0 3%
0.3%
0.1%
0.2%
0.2%
0.0%
0.0%
100.0%

Del
0
1
0
0
0
0
0
0
1
0
0
0
0
2
0
0
0
0
0
0
1
13
9
27

# Sec
Sec.
16
15
10
13
7
5
4
3
7
5
4
2
2
1
1
1
1
1
0
0
0
0
0
98

WeightUncapped Capped
32.7%
24.7%
20.2%
15.3%
6.6%
8.4%
6.4%
8.1%
5.9%
7.5%
5 1%
5.1%
6 5%
6.5%
5.0%
6.4%
4.4%
5.6%
3.5%
4.5%
2.2%
2.8%
2.1%
2.7%
2 0%
2.0%
2 5%
2.5%
1.5%
2.0%
0.8%
1.0%
0.6%
0.8%
0.5%
0.6%
0.3%
0.3%
0 3%
0.3%
0 3%
0.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
100.0%
100.0%

Sum = 40%

 The cumulative
weight of Kuwait
and Nigeria would
be reduced from
53% to 40% by
applying
pp y g the
proposed cap
 The weight ofother countries
would increasesignificantly
compared to theircurrent weights

Note: Data as of the close of January 31, 2014©2014 MSCI Inc. All rights reserved.

msci.com9

Simulated Historical Impact of the Proposal (*)
Number of Constituents in the FM 100 Index

Free float-adjusted market cap thresholds

115
110

270

107

104

105

230

101
100

248

250

107

98

98

99

234

229

99

215
210

203

202

95

193
190

90
85

170
Nov-10May-11

Nov-11

May-12

Nov-12

May-13

Nov-13May-14

Nov-10May-11

Nov-11

May-12

Nov-12

May-13

Nov-13 The historical application of the proposed methodology since the November 2010 SemiAnnual Index Review would have consistently resulted in a number of constituents
within the 85 to 115 target range, without the need to artificially cap the number of
constituents to 85 or 115
 The free float-adjusted market capitalization thresholds would have ranged from USD
193 million (November 2011 Semi-Annual Index Review) to USD 248 million (November
2013 Semi-Annual index Review))(*) please see disclaimer at the end of this document©2014 MSCI Inc. All rights reserved.

msci.com

10

Discussion Points Would the inclusion of sizable FM Small Cap securities be an appropriate
response to the decrease in the pool of potential constituents for the FM
100 Index following the reclassification of Qatar and UAE?
 Is it appropriate to use a cumulative coverage of the FM IMI to derive the minimum free floatadjusted market capitalization threshold ?

 Should the country concentration in the FM 100 Index be limited?
 Should MSCI let the number of constituents in the FM 100 Index float?
 Do
D you consider
id theh range off 100 +// 15 stocks
k as reasonable?
bl ?

 Should MSCI transition to the new FM 100 Index methodology in several
steps?
p
 The exclusion of Qatar and UAE securities from the FM 100 Index may increase considerably theweight of other countries in the index, potentially creating a significant turnover For example the changes could be implemented in seven steps over six months, from the May
2014 Semi-Annual
S iA
l IIndexd R
Review
i tto ththe N
Novemberb 2014 SSemi-AnnualiA
l IIndexd R
Reviewi©2014 MSCI Inc. All rights reserved.

msci.com11

Appendix

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12

Simulated List of Additions
Country

Security Name

FIF Mkt
Cap

KuwaitNigeria
MoroccoNigeria
KuwaitBahrain
KuwaitKuwaitPakistan
Nigeria
Oman
KuwaitKuwaitVietnamNigeria
Vietnam
KuwaitKuwaitNigeria
Argentina
Oman
Oman
Nigeria
Bangladesh
Oman
O
Oman
Vietnam
Pakistan
Lithuania
UkraineLithuania
Pakistan
Pakistan
Bulgaria

Nat'L Ind Grp Hold
Oando
BMCE
Unilever Nigeria
Al-Qurain
Q
Petrochemicals
Al-Salam Bank
Comm Real Estate Co
Kuwait Int'l Bank
Lucky Cement
Transnational Corp Of Ni
Renaissance Services Co
Jazeera Airways
Kuwait Portland Cement
Petrovietnam Drilling
Diamond Bank
Petrovietnam Tech Svcs
Aviation Lease And Fin
National Real Estate Co
Cadbury Nigeria
Cresud ADR
Bank Nizwa
Bank Sohar
Dangote Sugar Refinery
United Commercial Bank
Oman Cables Industry
O i
Ominvestt
Petrovietnam Gas Jsc
Pakistan Telecom. Co
Teo
Ukrnafta (Ux)
Apranga
Habib Bank
Fatima Fertilizer
Chimimport

783
725
655
630
602
575
549
539
523
437
408
367
350
327
309
291
287
283
281
280
275
261
257
250
248
246
208
123
100
88
87
84
62
53

StatusStt ini
FM IMI
Small Cap
Small Cap
Standard
Standard
Small Capp
Small Cap
Small Cap
Small Cap
Small Cap
Small Cap
Small Cap
Small Cap
Small Cap
Standard
Small Cap
Small Cap
Small Cap
Small Cap
Small Cap
Small Cap
Small Cap
Small Cap
Small Cap
Small Cap
Small Cap
S ll C
Small
Cap
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard

Comment
12M ATVR < 10%
12M ATVR < 10%

LegendAdditions - Proposed Methodology
Additions - Current Methodology
Additions - Current and Proposed Meth.

 With the proposed
methodology, 23 FM Small
Cap securities would be
added to the FM 100 Index

Low Index Mkt Cap
Low Index Mkt Cap
Low Index Mkt Cap
12M ATVR < 10%
Low Index Mkt Cap
Low Index Mkt Cap
Low Index Mkt Cap
Low Index Mkt Cap With the current
methodology, 3 securities
with 12-month ATVR below
10% would be added to the
FM 100 Index

Note: All market caps are in USD millions. Data as of the close of January 31, 2014©2014 MSCI Inc. All rights reserved.

msci.com13

Simulated List of Deletions
Country

Security Name

UAE
Qatar
Qatar
Qatar
Qatar
UAE
UAE
UAE
UAE
UAE
UAE
Qatar
Qatar
Qatar
Qatar
UAE
Qatar
Qatar
UAE
Qatar
Qatar
Qatar
Nigeria
VietnamUkraineJordanJordanEmaar Properties
Qatar National Bank
Qatar Industries
Al Rayan Bank
Ooredoo
Dp World
Nat'L Bank Of Abu Dhabi
Abu Dhabi Comm BankFirst Gulf Bank
Arabtec Holding
Dubai Financial Market
Qatar Elect & Water Co
Doha Bank
Vodafone Qatar
Qatar Islamic Bank
Dubai Islamic Bank
Commercial Bank Of Qatar
Barwa Reall Estate Co
Dana Gas
Qatar Gas Tran (Nakilat)
Qatar Nat'L Navigation
Al Khaliji Bank
Union Bank Nigeriag
Bao Viet Holdings
Motor Sich (Ux)Jordan Telecom Corp
Jordan Phosphate MinesFIF Mkt
Cap

Status in
FM IMI

6,501
4,254
3,585
3,502
3,277
3,021
2,300
2,017
1,797
1,793
1 383
1,383
1,246
1,135
1,061
1,021
977
977
835
828
760
692
505
144
120
104
94
78

Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standardd dStandard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard

Comment

LegendDeletions - Proposed Methodology
Deletions - Current Methodology
Deletions - Current and Proposed Meth.

 The 22 securities from Qatar
and UAE currently includedin the FM 100 Index would
be deleted

Low Index Mkt Cap
Low Index Mkt Capp
Low Index Mkt Cap
Low Index Mkt Cap
Low Index Mkt Cap With the proposed
methodology, 5 securities
with low free float-adjusted
market capitalization would
be deleted

Note: All market caps are in USD millions. Data as of the close of January 31, 2014©2014 MSCI Inc. All rights reserved.

msci.com14

Simulated Full List of Constituents
Security Name
1 National Bank Of Kuwait
2 Mobile Telecom Co
3 Kuwait Finance House
4 Nigerian Breweries
5 Guaranty Trust Bank
6 Kazmunaigas Expl Gdr
7 Zenith Bank
8 Nestle Foods Nigeria
9 Maroc Telecom
10 Gulf Bank
11 Ypf D Adr
12 Oil & Gas Development
13 Agility
14 Bank Muscat
15 Fbn Holdings
16 John Keells Holdings
17 Telecom Argentina B Adr
18 Kuwait Projects Co Hldgs
19 Safaricom
S f i
20 Mcb Bank
21 East African Breweries
22 Mabanee Co Sakc
23 Attijariwafa Bank
24 Kenya Commercial Bank
25 Masan Group Corp
26 Burgan Bank
27 Guinness Nigeria
gCement28 Dangote
29 Douja Prom Groupe Addoha
30 Oman Telecom Co
31 Mauritius Comm Bank
32 United Bank For Africa
33 Kcell Gdr
34 Nat'L Ind Grp Hold
35 Banca Transilvania
36 Lafarge Cement Wapco Nig
37 Equity Bank
38 Oando
39 Arab Bank
40 Square Pharmaceuticals
41 Vingroup Jsc
42 Banco Macro B Adr
43 Grupo Fin Galicia B Adr
44 Halyk Savings Bank Gdr
45 Access Bank Nigeria
46 Fauji Fertilizer Co
47 Al-Qurain Petrochemicals
48 Al-Salam Bank
49 Comm Real Estate Co

Country
KuwaitKuwaitKuwaitNigeria
Nigeria
Kazakhstan
Nigeria
Nigeria
Morocco
KuwaitArgentina
Pakistan
KuwaitOman
Nigeria
Sri Lanka
Argentina
KuwaitK
Kenya
Pakistan
Kenya
KuwaitMoroccoKenya
Vietnam
KuwaitNigeria
Nigeriag
MoroccoOman
Mauritius
Nigeria
Kazakhstan
KuwaitRomania
Nigeria
Kenya
Nigeria
JordanBangladesh
VietnamArgentina
Argentina
Kazakhstan
Nigeria
Pakistan
KuwaitBahrain
KuwaitFIF Mkt
Cap
7,442
6,224
5,312
3,647
2,494
2,439
2,254
2,198
2,054
1,748
1,745
1,668
1,492
1,467
1,453
1,363
1,322
1,310
1 272
1,272
1,226
1,185
1,174
1,121
1,120
1,113
1,104
1,030
985
973
918
874
829
820
783
767
738
730
725
709
709
705
689
687
685
642
616
602
575
549

Status in FM
IMI
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
S
Standardd dStandard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Small Cap
Standard
Standard
Standard
Small Cap
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Standard
Small Cap
Small Cap
Small Cap

Security Name
50 Kuwait Int'L Bank
51 State Bank Of Mauritius
52 Lucky Cement
53 S.N.G.N. Romgaz
54 Transnational Corp Of Ni
55 Hsbc Bank Oman
56 Commercial Bank Ceylon
57 Tallink Group58 Renaissance Services Co
59 Omani Qatari Telecom
60 Islami Bank Bangladesh
61 Omv Petrom
62 United Bank
63 Raysut Cement Co
64 Grameenphone
65 Jazeera Airways
66 Bcp Banque Centrale Pop.
67 Pakistan Oilfields
68 Kuwait
K
i P
PortlandldC
Cement69 Petrobras Arg Sa Adr
70 Oman Cement Co
71 Petrovietnam Drilling
72 Petrovietnam Fert & Chem
73 Diamond Bank
74 Engro Corporation
75 Co-Op Bank Of Kenya
76 National Bank Pakistan
77 Petrovietnam Tech Svcs
78 Pakistan Petroleum
79 Aviation Lease And Fin
80 Hub-Power Co
81 National Real Estate Co
82 Cadbury Nigeria
83 Cresud Adr
84 Bank Nizwa
85 Bank Sohar
86 Bbva Banco Frances Adr
87 Dangote Sugar Refinery
88 Titas Gas Trans89 Vietcombank
90 United Commercial Bank
91 Oman Cables Industry
92 Ominvest
93 Nis Ad Novi Sad
94 Brd Groupe Societe Gen
95 Telekom Slovenije
96 National Bank Of Oman
97 Ahli Bank
98 Sacombank

Country
KuwaitMauritius
Pakistan
Romania
NigeriaOman
Sri Lanka
Estonia
Oman
Oman
Bangladesh
Romania
Pakistan
Oman
Bangladesh
KuwaitMoroccoPakistanK
Kuwaiti
Argentina
Oman
VietnamVietnamNigeria
Pakistan
Kenya
Pakistan
Vietnam
Pakistan
KuwaitPakistan
KuwaitNigeria
Argentina
Oman
Oman
Argentina
Nigeria
Bangladesh
VietnamBangladesh
Oman
Oman
SerbiaRomania
Slovenia
Oman
Oman
Vietnam

FIF Mkt
Cap
539
525
523
501
437
429
424
409
408
406
398
395
389
378
369
367
359
357
350
333
328
327
327
309
303
295
295
291
289
287
283
283
281
280
275
261
260
257
257
251
250
248
246
239
239
234
192
192
177

Status in FM
IMI
Small Cap
Standard
Small Cap
Standard
Small Cap
Standard
Standard
Standard
Small Cap
Standard
Standard
Standard
Standard
Standard
Standard
Small Cap
Standard
Standard
S
Small
ll C
Cap
Standard
Standard
Standard
Standard
Small Cap
Standard
Standard
Standard
Small Capp
Standard
Small Cap
Standard
Small Cap
Small Cap
Small Cap
Small Cap
Small Cap
Standard
Small Cap
Standard
Standard
Small Cap
Small Cap
Small Cap
Standard
Standard
Standard
Standard
Standard
Standard

Note: All market caps are in USD millions. Data as of the close of January 31, 2014©2014 MSCI Inc. All rights reserved.

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15

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16

Notice and Disclaimer
This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the “Information”) is the property of MSCI Inc. or its subsidiaries(collectively “MSCI”)(collectively,“MSCI”), or MSCI’s licensors
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Notice and Disclaimer (continued)
This report may contain analysis of historical data, which may include hypothetical, back-tested or simulated performance results. There are frequently material differences between backtested or simulated performance results and actual results subsequently achieved by any investment strategy.
strategy The analysis and observations in this report are limited solely to the period of
the relevant historical data, back-test or simulation. Past performance -- whether actual, back-tested or simulated -- is no indication or guarantee of future performance. None of theinformation or analysis herein is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision or asset allocation and should
not be relied on as such.
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