Muzaffar Rizvi / 13 June 2013
The UAE and Qatar have received a shot in the arm with the global index compiler MSCI elevating the two Gulf countries to emerging markets, a status that would boost investor sentiment and attract foreign investment inflows into the region.
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| Investors monitor share prices at the Dubai Financial Market at the Dubai World Trade Centre on Wednesday. The DFM is amongst the best performing exchanges globally since the beginning of the year. — KT photo by Rahul Gajjar |
They are also expected to attract approximately one per cent, or up to $500 million, of total global investments in the emerging markets space annually, after the reclassification takes effect in May next year.
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While the UAE upgrade was widely expected, MSCI demoted Greece to an emerging market, 12 years after its promotion from the category to a developed market, and Morocco to a frontier market.
MSCI managing director and global head of index research Remy Briand said in a conference call in London that Qatar and UAE stock markets would have a greater share in MSCI Emerging Market Index as compared to Greece, which downgraded from developed market. “Qatar and the UAE will have a 0.45 per cent and 0.45 weight in the MSCI Emerging Market Index compared to Greece’s 0.3 per cent,” he said. Greek stocks fell sharply as the MSCI move sparked fears.
UAE Economy Minister Sultan bin Saeed Al Mansouri said the elevation was in light of a number of financial market technical criteria and other objective reasons, including the country’s economic development indices like the GDP, per capita income and growth rate, the size of the economy, liquidity, market accessibility and other issues which reflect the strength of the UAE national economy, which are not available in many emerging markets or even in some advanced market, “I expect the decision to elevate the UAE’s market status to reflect a value addition to the local markets. It would be a giant stride forward as MSCI certifies that the UAE had met all the requirements of the international agency to deserve this status on its index,” Al Mansouri said.
New York-based Morgan Stanley Capital International (MSCI) currently has its country indices for both the UAE and Qatar. In the UAE Index, the developer includes stocks such as Emaar Properties, DP World, ADCB and NBAD, but it is still unclear if all of these will be included in the Emerging Market Index. Securities and Commodities Authority chief executive Abdullah Al Turifi said there would be direct and indirect advantages for the UAE’s joining the MSCI Emerging Market Index.
“Such achievement will allow the UAE markets to get rid of their current classification as start-up markets and to take their natural place on the map of emerging markets, which includes countries such as Russia, China, Brazil, Malaysia and Turkey,” Al Turifi said.
The Dubai Financial Market (DFM) also welcomed the MSCI classification review.
Essa Kazim, managing director and chief executive, Dubai Financial Market, said: “This development is overdue in light of the market infrastructure improvements made and ticking of all upgrade requirements long time ago. We are delighted to see the UAE market upgraded to emerging markets status, which reflects international investors’ confidence in our markets and their satisfaction with what we have accomplished.”
Shailesh Dash, chief executive of Al Masah Capital Management, told Khaleej Times that it is an excellent news for the UAE and an affirmation that the markets had truly turned a significant corner.
To a question about possible funds inflows to the UAE and Qatar after the reclassification, he said the two markets would be attracting investment inflows ranging from $400 million to $500 million, which is based on minimum weighting within MSCI for each country. “We would not be surprised if two to three times that amount of speculative money comes in just to catch the wave. This exposure is global so foreign inflow could be significant,” he added. MSCI said international institutional investors recognised the improvements made by the UAE regulator and bourses with respect to the delivery versus payment model.
“The majority of market participants have expressed no major concerns over the safekeeping of investors’ assets and are starting to move away from the dual account structure,” it said.
For Qatar, the index provider said it welcomed the progress made by the authorities to raise the limits on foreign ownership of companies listed on the Doha-based exchange, but added that the current foreign ownership limits were still low by emerging market standards and the Qatari authorities should actively continue to increase them above 25 per cent in order to mitigate potential issues arising from increasing foreign capital inflows, MSCI said.
“The MSCI decision to upgrade Qatar and the UAE from frontier markets to emerging markets, with effect from May 2014, reflects a growing realisation of how far these economies and their financial markets have developed in recent years,” said Sam Vecht, BlackRock’s head of the emerging markets specialist team and portfolio manager of the Frontiers Investment Trust. The equity index provider also said it is closely monitoring the situation in Egypt and in particular the country’s foreign exchange market.
“MSCI may be forced to launch a public consultation on a potential exclusion of Egypt from the emerging markets index if the situation is to worsen in the coming months.”
MSCI further said it maintained the emerging market status of Korea and Taiwan and will review their potential reclassification to developed markets as part of the 2014 annual market classification review.
MSCI also initiated the review of China A-shares for potential inclusion in the MSCI Emerging Market Index.
I was rather expecting to hear that kind of news for UAE. This country is really doing well for so many years now. Kudos to those people who made that happened.
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