UAE, Qatar Miss Out Again on MSCI Emerging Market Upgrade

Zawya – Index compiler MSCI Inc. (MSCI) late Wednesday said it decided to keep the United Arab Emirates and Qatar as frontier markets, a blow to a small number of local investors who were hoping a promotion to emerging market classification would help boost trading activity.

As in December, when both markets were last passed over for an upgrade, MSCI cited concerns over trade settlement mechanisms in the U.A.E. and Qatar’s failure to increase foreign ownership limits.

“The MSCI U.A.E. Index meets all requirements besides specific market accessibility issues related to custody and clearing and settlement,” MSCI said in a statement on its website.

In terms of Qatar, MSCI noted that Qatari authorities haven’t yet addressed the specific issue around the very low foreign ownership limits.

Although expectations for a positive decision were somewhat modest this time around, some investors were counting on an MSCI upgrade to help revitalize sleepy local markets. Many foreign investors and fund managers closely track MSCI indexes as benchmarks for their investment strategies and an upgrade would likely trigger increased foreign fund inflows.

Shares listed on Dubai’s share market are up some 9% so far this year, while Abu Dhabi’s main market has added close to 4%. Qatar, the region’s only market to end in positive territory last year, has lost a touch over 5% in value during 2012.
Akber Khan, director of asset management at Al Rayan Investment in Doha, said MSCI’s latest decision on the U.A.E. and Qatar comes as no big surprise.

“If the MSCI was a central bank, they would upgrade both U.A.E. and Qatar now because market participants had virtually no expectation of it happening,” he said. “But they aren’t, and according to their guidance Qatar still does not qualify because of the FOL (foreign ownership limit) issue. In December MSCI judged the U.A.E. as having teething issues with DVP implementation. A further issue for the U.A.E. could be volumes which have tracked back down in recent weeks,” Mr. Khan added.