FTSE Russel („company“) is a global provider of benchmarking covering 98% of markets suitable for investing by the institutional investors. The company performs annually a country classification process to assess suitability of a market for equity investments. The countries are classified against objective criteria in cooperation with local stock exchanges, regulators and central banks. To be classified to the highest category the country has to adopt the global best practice.
Basis for the classification process is the Quality of Markets Matrix, which currently consists of 21 criteria for area of emerging markets of the European region. Against these criteria are classified market and regulatory environment, custody and settlement procedures, dealing landscape and presence of derivatives market. The criteria are supplemented with figures for GDP per capita and credit rating of the country. On 1 January 2020 FTSE Russel shall implement enhancements to the Quality of Markets Matrix against which the markets will be classified from September 2020. The classification of the country should not be changed frequently, therefore only when compliance with appropriate standards has been confirmed for a period of time. The countries are classified by categories (from the top) as Developed, Advanced Emerging, Secondary Emerging and Frontier. FTSE Russel annually issues two announcements of country classification, namely Interim Update at the end of March and Annual Announcement at the end of September. Notice on change of country classification is provided with minimum notice period of one year.
According to the FTSE country classification scheme the Slovak equity market is currently classified as the lowest category, i.e. Frontier market. The highest category in the CEE region has the Polish capital market which is classified as Developed market since 2018. The Romanian market was promoted to the higher category and from the September 2020 will be classified as Secondary Emerging market, what FTSE Russel announced in autumn this year.
Author: Dagmar Kopuncová