For Whom The Bell Tolls: MSCI Market Reclassification Expected Today

MSCI MSCI, the index provider that lends its name to scores of ETFs, particularly in the emerging markets arena, is expected to announce its widely anticipated market reclassification this evening at around 5 PM Eastern time, news that could mean big things for the iShares MSCI Emerging Markets Index Fund EEM and its larger rival, the Vanguard MSCI Emerging Markets ETF VWO. As we recently noted, South Korea and Taiwan are two prime candidates to make the leap to developed market, while Qatar and the United Arab Emirates could jump to emerging markets status from frontier market, according to Tim Seymour. If both South Korea and Taiwan get a promotion, EEM and VWO will have some sizable gaps to fill as those two countries account for over 26% of both ETFs' country weights. Not only that, since South Korea and Taiwan are cash markets, a taxable distribution would be created to EEM and VWO shareholders since the ETFs would have to sell Korean and Taiwanese stocks and replace them with other fare. Seymour speculates that Poland, Russia, Turkey and South Africa will be where fund managers focus to fill the holes. Russia and South Africa combine for about 14% of each ETF's weight while VWO devotes weights of 1.5% and 1.7%, respectively, to Poland and Turkey. Fresh buying of stocks from these countries would of course mean good news for the following ETFs: The Market Vectors Russia ETF RSX, the iShares MSCI South Africa Index Fund EZA, the iShares MSCI Turkey Investable Market Index Fund TUR, the Market Vectors Poland ETF PLND and the iShares MSCI Poland Investable Market Index Fund EPOL. Other countries to watch for increased weights in EEM and VWO include Colombia, India, Indonesia and Thailand. On that note, the Global X FTSE Colombia 20 GXG, the Market Vectors Indonesia ETF IDX and the iShares MSCI Thailand Investable Market Index Fund THD along with any of the large-cap focused India-specific ETFs such as the WisdomTree India Earnings ETF EPI are all ETFs to keep an eye on if EEM and VWO have big holes to fill post-reclassification.