Translation:

MSCI Index = Morgan Stanley Capital International Index.

Simplified definition:

It is like a "certification and global performance measurement index" for stock markets. The MSCI company studies stock exchanges around the world and divides them into lists (indices) that include the strongest and most liquid companies, to make it easier for large global investment funds to know where to pump their money.

What does it mean to you?

  • Magnet for foreign money: The accession of your country's stock exchange (such as the Saudi market) or a company you own shares in to the MSCI index means the automatic flow of billions of dollars from global funds to buy these shares.
  • Liquidity and activity: On days when MSCI announces its periodic review (such as the May review), the market witnesses massive trading activity and exceptional activity called economically "rebalancing" (Rebalancing).
  • Risk of money outflow: If market transparency declines or companies violate standards, they are excluded from the index (as happened to Indonesia recently), which leads to the flight of foreign investors and stock decline.

Common question:

Why do countries and major companies rush behind joining MSCI indices and struggle to meet its complex requirements?

Answer:

For three strategic reasons that matter to any economy in the world:

  • Entering the radar of "hot and idle money": There are massive global investment funds called (Passive Funds) whose only function is to imitate the MSCI index; if the index puts a particular company on its list, these funds buy the company's shares "mandatorily" and without thinking.
  • International reputation and credibility: Upgrading a country in the MSCI index (for example from a beginner market to an emerging market like Saudi Arabia) is considered a "certificate of forgiveness" and a global certificate that this country's laws are safe, fair and advanced for the foreign investor.
  • Local currency stability: The flow of foreign investors to buy local stocks requires them to convert their dollars to the local currency, which increases the value of the country's currency and supports its monetary stability.