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Tuesday, July 23, 2024

MSCI upgrade

by Joanna Andrews

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If at first you don’t succeed, try and try again. That’s exactly what the UAE and Qatar did, and after five failed attempts to win over the MSCI they finally got what they were waiting for! The two countries were recently upgraded to emerging-market status by the global index compiler. Joanna Andrews looks at the benefits.

After more than five years on review the MSCI finally upgraded the United Arab Emirates and Qatar from frontier markets (FM) to emerging markets (EM). That means the MSCI will promote the two countries in the new category from May 2014. It marks a new era for the UAE and Qatar’s capital flows as the move usually leads to big inflows from global funds.

Announcing the upgrades, the MSCI said that the UAE stock market regulator had made improvements in the country’s three exchanges in Dubai and Abu Dhabi, adding that the “majority of market participants have expressed no major concerns over the safekeeping of investors’ assets.”

As for Qatar - the world’s biggest exporter of liquefied natural gas - the index provider said it welcomed the progress it had made in raising limits on foreign ownership of firms listed on the Qatar exchange. Although, it added that the country’s 25 per cent ceiling on overseas ownership was still “well below the limit” by emerging market standards. “Qatari authorities should actively continue to increase them above 25 per cent in order to mitigate potential issues arising from increasing foreign capital inflows,” it said.

The upgrades are important because the MSCI’s Emerging Market Index tracks more than $7 trillion of equities around the world. It means the two countries will catch the attention of global fund managers and means foreign investors will likely channel more money - and more stable sources of capital - into the markets here. No surprise then that shares rallied to multi-year highs in both countries following the news.

This year GCC equity markets have been on a growth trajectory, and that’s likely to continue into the second half of the year courtesy of stable oil prices and the continued improvement in the socio-political situation, according to Alpen Asset Advisorys’ ‘GCC Market Outlook for 2013’ report. “The GCC equity markets offer investors a unique combination of strong corporate earnings growth, high dividend yield with reasonable valuations,” says Sudarshan Malpani, Managing Director, Alpen Asset Advisors. “The markets are just starting to get on the radar of international investors and also being actively considered for intra GCC cross investments.”

However, the MSCI isn’t known for its generosity of spirit. Keeping the highly coveted title of emerging market status isn’t easy. As the MSCI upped the UAE and Qatar it wasn’t so generous with Morocco - slashing the country to a frontier market after Morocco failed to meet minimum liquidity requirements. MSCI also said it is closely monitoring the situation in Egypt - the only other emerging market in the MENA region.

For the time being though the UAE and Qatar can bask in the glory and get ready to reap the benefits of the MSCI’s reclassification. And after trying for so long to join the emerging market club, the two countries will undoubtedly do everything in their power to hold on to their new elite status.

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