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Pan-Baltic capital market to benefit from single index classification

By Nigina Mirbabaeva

The Ministries of Finance of Estonia, Latvia and Lithuania, the European Bank for Reconstruction and Development (EBRD), the European Commission (EC) and Nasdaq Baltic jointly welcome the MSCI initiative to regionally consolidate the Estonian, Latvian, and Lithuanian markets for the purpose of index construction and maintenance.  

The new single index, which will launch as of the August 2023 Index Review, will allow the three markets to be integrated into the MSCI universe and raise the profile of the region among international investors who track MSCI indices. 

The approach is in line with the efforts of all relevant stakeholders to create a single pan-Baltic capital market – as outlined by a Memorandum of Understanding signed in 2017 – and is a building block of the European Union’s Capital Markets Union initiative. 

The MSCI Baltic Index will initially be constructed based on Frontier Market constituents from Estonia and Lithuania. The regional index may include Latvian securities in the future, should any such securities become eligible. Ultimately, the regional consolidation will result in a larger MSCI Baltic Index with more constituents – which would have not been the case if each jurisdiction were screened separately.  

“This is an extremely positive step reflecting, in part, five years of constructive dialogue with global institutional investors and index providers,” commented Jim Turnbull, Deputy Director of Capital and Financial Markets at the EBRD. “We need to support the momentum by building an inventory of debt and equity products and encouraging secondary market liquidity.” 

He continued: “It is encouraging to see that the Baltic states stakeholders remain committed to encouraging new companies – including state-owned enterprises – to open their capital structures and tap the capital market. The EBRD remains focused on supporting further policy initiatives and providing investment support across asset classes to achieve these goals.” 

Valdis Dombrovskis, Executive Vice-President of the European Commission, said: “I welcome the initiative to launch the MSCI Baltic Index as a further step towards the creation of a single pan-Baltic capital market. A single index classification will raise the region’s profile for international investors and provide a basis for deeper cross-border capital markets across Europe as we advance with building a true Capital Markets Union. It will also help to overcome some of the constraints that Baltic economies face in accessing finance and attracting investment due to their limited size. This initiative sends a clear message to global investors that Baltic countries are open for investment. I am glad the reform also builds on the support provided by the Commission through the technical support instrument.” 

Mart Võrklaev, Minister of Finance of Estonia, said: “This is another important step in the regional cooperation of three Baltic states in developing our capital markets together. We already harmonised our covered bonds framework in this corner of Europe a few years ago. This is a good example of how small EU member states can win more from cooperation than from doing it alone. In this respect, the MSCI Baltic Index puts Baltic companies on the radar of a larger pool of international investors. We hope that the MSCI Baltic Index attracts more foreign investment and improves access to capital for Baltic companies, which will benefit our economy.”  

Arvils Aseradens, Minister of Finance of Latvia, said: “We welcome the introduction of the MSCI Baltic Index and closer cooperation on capital market development in the Baltic states. The index will improve the visibility of our companies to investors. The Latvian government has committed itself to activating operations on the capital market and facilitating listings of state-owned enterprises.” 

Gintarė Skaistė, Minister of Finance of Lithuania, said: "I am very pleased that our efforts of the last few years are producing tangible results – the MSCI Baltic Index. Merging the markets will increase the competitiveness of the Baltic countries by developing capital markets and promoting international investments. Moreover, the integrated Baltic securities trading infrastructure will encourage more companies to take advantage of the significantly increased capital market, open up their capital structures and use other instruments, issue shares and bonds, with the help of which the capital raised could be used to finance projects." 

Kaarel Ots, CEO of Nasdaq Tallinn, said: “Regional consolidation of Estonia, Latvia and Lithuania in the new MSCI Baltic Index will support a common regional capital market by overcoming the constraints we would face due to our individual sizes. This is definitely a step in the right direction, but the index will still be part of the Frontier Markets. Our ambition is to upgrade our region to a Developed Market classification one day.” 


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