Will Israel Enter the MSCI Europe?

The global stock index provider Morgan Stanley Capital International (MSCI) recently announced it is seeking market feedback on Israel’s possible inclusion in its European indices. MSCI, considered one of the largest stock index providers in the world, plans to announce a decision by the end of February 2022.

A positive decision may have a favorable impact on the Tel Aviv Stock Exchange and on the securities listed on it. This is because of the addition of Israel to dozens of MSCI’s secondary European indices. The significance of Israel’s consideration as part of European territory and its inclusion in the indices is that, when global investment entities allocate investments to Europe, some of these investments will flow to Israel and serve as a “booster” to the Israeli economy. The assessment is that Israel’s inclusion in the MSCI Europe Index will result in the allocation of more than half a billion dollars for the purchase of Israeli companies’ securities.

Until now, MSCI refrained from including Israel in its European indices and instead included it in the designated index “Europe and Middle East,” which did not benefit from any massive inflow of money. The Tel Aviv Stock Exchange has tried to change this decision over the years, but without success. Now, there is a real chance Israel will succeed in its goal of reassignment, but it depends, inter alia, on the results of the online survey MSCI is conducting for this purpose.

Financial and asset managers who wish to complete the survey and to support Israel’s inclusion in the MSCI Europe Index can fill it out here.
Submission of the survey is until January 31, 2022. MSCI aims to reach its decision by February 28, 2022.

Following are some salient points supporting Israel’s inclusion in the MSCI Europe Index:

• Many economic organizations already consider Israel as part of European territory in respect of many financial and economic aspects.
• Israel is not assigned to any major MSCI territory in terms of indices, which is illogical considering the strength of the Israeli economy.
• Investors in MSCI’s European indices are currently missing an opportunity to diversify their investment portfolios due to the non-inclusion of Israel. They are also missing an opportunity to gain exposure to the Israeli currency, the ILS, a strong currency that continues to appreciate. Investors are also being denied the opportunity of exposure to the Israeli high-tech industry.
• Israel’s inclusion in the MSCI Europe Index will enable managers of investment products to invest in Israel. Today, many managers complain they are being prevented from investing in the Israeli market because Israel is not included in the MSCI Europe Index.
• European indices have lower representation of high-tech companies compared to US indices. Israel’s inclusion in the MSCI Europe Index will make the index more competitive against the US indices in this regard.
• Israel’s non-inclusion in the MSCI Europe Index causes investors in the index to miss opportunities for exposure to about 45 Israeli high-tech companies considered unicorns and offered on the NASDAQ in recent years. Eight percent of all technology companies in the world deemed unicorns were founded in Israel.

***

The Capital Markets Department at Barnea Jaffa Lande Law firm is at your disposal for any questions or concerns.