Description
Index providers create financial indices that are seen as representations of the underlying ‘market’. Trillions of dollars track indices via passive investment products of index funds and ETFs. Index providers classify markets into three categories: developed, emerging and frontier markets. These classifications are important because significantly more capital tracks developed, and to a lesser degree emerging markets, than frontier markets. I probe the criteria that index providers create for frontier markets, which considers them a threat or danger, rather than accessible, to international investors. Countries have to ensure their financial markets meet the standards of index providers to be included in more prestigious indices and gain access to the capital that tracks those indices. I draw on the case of Vietnam, classified as a frontier market by MSCI but recently reclassified as an emerging market by FTSE Russell. Vietnam has targeted index reclassification to attract more foreign capital, pursuing significant reforms to its’ capital markets to meet the index providers’ standards. I argue that index inclusion is an increasingly important component of state development strategy. States are left with a choice to either adapt their financial markets to meet the standards of index providers or remain on the financial frontier.
