What will happen if the MSCI goes free float? This question is posed by a recent Schroder Salomom Smith Barney research document, following the MSCI announcement that it would start consulting with the market on the question this month.
SSSB believes that MSCI will move to a ‘banded style of free float’, with the float factor rounded up to nearest 10 or 20. The firm makes estimates of the impact for different components of the index assuming 100% free float factors are adopted.
For Europe, the analysis predicts it will cause a huge flow of funds from Germany, France and Italy into the UK and Swiss markets. Assuming that $200bn is benchmarked against the MSCI Europe, $10bn could flow into the UK, with $4.5bn quitting both the French and German markets. In industry terms the impact in Europe could be very significant, with telecoms and insurance groups being losers and energy and pharmaceuticals among the gainers.
Within the EAFE index, which is estimated to be tracked by $330bn, the move could mean $17bn moving to the UK, with around $14bn of this coming from Japan.
The analysts point out that as not much tracking is done against MSCI World, the US is unlikely to see a significant funds inflow, despite the significant increase in the US portion of this index.