The nation of Israel will soon be upgraded from emerging market to developed market status, a twist that could lend plenty of investment grade credibility to the country. The rating change has a tremendous impact on Israeli equities, as many ETFs and mutual funds will have to exit their positions as the rating is changed.

At present, it will not be until May 2010 that Israel becomes a developed market. Nonetheless, many emerging market funds will be selling their Israeli holdings in the coming weeks, while developed funds will wait until 2010 to buy shares. Bank of America Merrill Lynch expects the new classification to bring as much as $2.8 billion in capital to the Israeli stock market, according to Haaretz.

Investors may get a chance to buy localized bargains before the new classification change is complete. Israeli shares will inevitably slump during the period between the change when old capital leaves and new capital is waiting on the sidelines for the official upgrade.

The Middle East may be riddled with political unrest and near constant warfare, but on the business end, its stock markets could not be performing better. Improving global economic and political conditions have created a conduit for the Middle East to grow into the second richest emerging market in the world.

The Middle East isn’t just a bubble. Since 2000, the Middle East has grown at a rate greater than 5% per year, without any large draw downs in growth. Higher commodity prices, including crude oil, have allowed the Middle East to profit heavily on exports while importing very little. Some investment concerns do remain, including high levels of debt that have not been reduced even in a positive economic climate, NASDAQ reports.

Two ETFs, iShares MSCI Turkey Invest Mkt Index (TUR: Quote, Profile, Advanced Chart, News) and iShares MSCI Israel Cap Invest Mkt Index (EIS: Quote, Profile, Advanced Chart, News), each show large year-to-date returns in 2009 of 30.9% and 33.5% respectively. This recent growth for both ETFs is illustrated in the following chart.

The booming Cleantech Index (CTIUS) has expanded its global territory by adding 33 new companies to the mix. The American Stock Exchange lists CTIUS, which is now made up of 76 companies. According to the Business Wire article, approximately half of the companies within the index are non-U.S., and 23 of the newly added companies are based in Europe. Of the remaining ten companies added, six are from Asia and four from North America. Two ETFs that track CTIUS have also been updated to reflect the change. These two ETFs are identified in the Business Wire article as PowerShares Cleantech Portfolio ETF (PZD) and Cleantech ETF of Israel (KSM).

The Cleantech Index contains companies of many industries like water, agriculture, manufacturing and transportation. Business Wire explains that these companies have to obtain at least half of their revenue from clean technology business to maintain its membership or even be eligible for entry into the index. Rafael Coven, Managing Director of the Cleantech Indices, provides insight into the addition of the new companies, saying, "This expansion augments the Indexs coverage of the surging world demand for clean technology solutions in the face of resource and environmental challenges. The success of CTIUS has been documented in 2007 to have outperformed the S&P 500 by more than 37%, and in the past year, maintained that lead by more than 26%.

By June of 2009, a handful of countries could have a new MSCI market classification. MSCI Barra has begun discussions on the potential upgrade of South Korea and Israel. Polya Lesova of Market Watch writes that the two countries, currently listed as emerging markets, may be raised to developed market status. South Koreas currency convertibility could be a major obstacle; however, as international investors have shown concern with the won. Other possible upgrades include the transition of Kuwait, Qatar, and United Arab Emirates from frontier markets to emerging markets as they continue to make progress. The emerging market performances are tracked by iShares MSCI Emerging Markets ETF (EEM).

While some countries have shown signs of growth and have a chance at improving their MSCI status, other markets have slowed down. The Market Watch article explains that each of these reclassifications will be reviewed for months before making a final decision. However, MSCI has already decided on the downgrade of Jordan to a frontier market from its prior emerging market classification. The decision came primarily in response to its size and lack of liquidity. Other markets in danger of similar downgrades are Colombia and Argentina. Market Watch claims that these two markets have until December to make some "significant improvements of capital flow restrictions. A Citigroup Global Markets analyst shared insight into the magnitude of these discussions saying, "MSCI is taking an important step towards making some of the most significant changes to the composition of the emerging markets indices since the reclassification of Portugal (1997) and Greece (2000) as developed markets several years ago.”

Another two Northern Trust ETFs have hit the market tracking Israel and Portugal. NETS TA-25 Index Fund (TAV) will track Israels Tel-Aviv Stock Exchange. According to Heather Bell of Index Universe, this index is size-specific, made up of 25 stocks with the largest market capitalization. TAV is now in competition with iShares MSCI Israel Capped Investable Market Index Fund (EIS), which launched this past March. Though Northern Trusts expense ratio is slightly more than the iShare brand at 0.70% compared with 0.68%, Ms. Bell explains that Northern Trust would be using the underlying index to attract investors.

The second NETS ETF to come onto the scene connects to the Portugal market. This fund is known as NETS PSI-20 Index Fund (LIS) and will follow the Euronext Lisbon Exchange Index with large cap stocks. Index Universe reports that this is the first U.S. based ETF to monitor. It is yet to be determined how popular this small market will be with investors.