Sunday, December 17

U.A.E and Qatar Set for MSCI Upgrade

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After a series of missed opportunities, UAE and Qatar look certain to be elevated to emerging market status next week in the MSCI emerging market index  after both the nations have improved market accessibility, HSBC holdings  has said. The two countries have improved their delivery-versus-payment systems and now include the buyer cash compensation procedure, where the investor is paid in cash if a security is unavailable for delivery on the settlement day. “The upgrade will potentially result in access to a large pool of investments” HSBC analysts Vijay Sumon and Joaquim de Lima wrote in a research reported on 31st May, 2013. This move could see more than $ 430 million flowing into Qatar and about $ 370 million into the U.A.E, they said. U.A.E had missed the opportunity five times for the consideration of reclassification from frontier market status. Stock analysts and industry experts opined that the long awaited reclassification of U.A.E and Qatar would give stock markets in both the countries a major impetus by placing them among the most preferred investment decisions for global investors who track MSCI benchmark indexes. MSCI, whose gauges are tracked by investors managing about $ 7 trillion, said last year that foreign ownership limits in Qatar and operational frameworks in U.A.E needed revising.

Soon after the news of a possible upgrade broke out Dubai shares jumped to the highest in more than four years. The DFM general index gained 2.7 percent to 2,430, the highest since November 2008. Abu Dhabi’s index rose by 0.8 percent. Morocco could be reclassified into frontier market from emerging market because of “diminished liquidity”. Last month T. Row Price Group Inc. (TROW) had said that both Dubai and Qatar deserved the MSCI’s upgrade to emerging. “Both Qatar and Dubai are in a better position and meet more of the criteria than other countries that have been upgraded before” said Oliver Bell manager at T.Rowe’s Africa and Middle East Fund (TRAMX).

In a 2012 review, MSCI had pointed out that, while the U.A.E met all the requirements for promotion, there were specific market accessibility issues related to clearing, custody and settlement due to a delay in changing the current requirement that international investors will need to operate with a dual account structure.

MSCI Emerging Market Index

MSCI stands for Morgan Stanley Capital International; MSCI is an investment research firm that provides indices, portfolio risk, performance analytics and governance tools to institutional investors and hedge funds. MSCI is a publicly traded company on the New York Stock Exchange.

The emerging market index is a float adjusted market capitalization index that consists of indices in 21 emerging economies. Emerging markets are considered relatively risky because they carry additional economic, political and currency risks. Emerging markets are not for those who value safety and security over profits. An investor in emerging markets should be willing to accept volatile returns as there is always a chance for huge profits and large losses.

Foreign ownership limits are not seen as a hindrance in the U.A.E, as most stocks have caps at 49 percent, HSBC said. Foreign ownership has seen a lot of improvement in Qatar but is still very low. 

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