Hopes rise for Emirates MSCI upgrade

Stock market officials are confident ahead of a decision this month by MSCI about promoting the UAE to "emerging" market status.

Huseyin Al Abdullah, chairman of Qatar Exchange, left, Hamad Al Shamsi, the deputy chairman of Abu Dhabi Securities Exchange, centre, and Abdullah Salem Al Turifi, chief executive of the Securities anShow more

Shares surged yesterday after stock market officials expressed confidence that the country would be upgraded to emerging market status this month.

Finance:

Industry Insights Exclusives you can bank on from The National's premium content. Learn More

MSCI, a stock index company, delayed a decision on upgrading the UAE and Qatar in June to monitor progress on areas such as opening up to foreign ownership and upgrading payment systems.

"I'm confident as we have fulfilled all the requirements," Ibrahim Al Zaabi, the deputy chief executive at the Emirates Securities and Commodities Authority (SCA), said yesterday. "We are encouraging companies to open up the limit for foreigners, but it will take time to integrate."

After months of sluggish performance, UAE stocks have rallied in recent days as investor hopes build ahead of MSCI's decision. The Dubai Financial Market General Index yesterday rose 1.8 per cent to close at 1,404, its highest in more than a month. Emaar Properties, a market bellwether, rose 5.5 per cent to a more than three-month high of Dh2.86. The Abu Dhabi Securities Market General Index General climbed by 1.2 per cent to 2,473.

MSCI is due to announce on December 14 whether it will upgrade the UAE to emerging market status from its current "frontier" markets ranking.

Since June officials have updated regulations to create market-makers - investors who help build liquidity by guaranteeing to offer bid or ask prices at all times. Short selling, another requirement of MSCI, whereby traders borrow stocks to sell them, would be available on the Dubai Financial Market (DFM) at "the beginning of next year", said Essa Kazim, the chief executive of the DFM, on the sidelines of the Arab Federation of Exchanges annual conference in Abu Dhabi.

The MSCI upgrade is seen as important, as fund managers are reluctant to invest in frontier markets because of their high volatility and associated risks.

Emerging markets are perceived as more stable and liquid, acting as a window for foreign portfolio investors.

About US$125 billion (Dh459.13bn) in assets is allocated under the MSCI Emerging Market Index globally.

"All the checklists that are supposed to be fulfilled are there," said Rashed Al Balushi, the deputy chief executive of the Abu Dhabi Securities Exchange. "But [an MSCI upgrade] will not change what's happening [in global markets]."

Turmoil in parts of the Arab world and the impact of the European debt crisis have buffeted UAE markets. Dubai is down 14 per cent so far this year, while Abu Dhabi has lost 9 per cent. Volumes have dropped by 90 per cent from their 2007 peak.

Emerging markets have not been immune. More than 17 per cent has been shaved off the MSCI Emerging Market Index since the start of the year.

Some asset managers are also sceptical about how much difference an upgrade would make.

"If this decision is given now, it will not have the required effect, as international investors are not interested," said Mohammed Ali Yasin, the chief investment officer at CAPM Investment in Abu Dhabi. "Today's markets are struggling with low trading volumes and that will only increase if local investors increase trading. If that happens, then it will encourage foreign investors."

Qatar is also hoping for an MSCI promotion to emerging market status on December 14.

Although the Qatar Exchange is one of the star performers in the region this year, officials are less confident.

Under government rules, companies are limited to a maximum 25 per cent foreign ownership, with the exception of certain companies. The law is more stringent than in the UAE, where the limit is 49 per cent, apart from in free zones.

Legalising short selling also appears unlikely, at least in the immediate future.

"You need a high liquidity for short selling. In Qatar I don't think it will happen in 2011," said Huseyin Al Abdullah, the chairman of the Qatar Exchange.

An elevation of the UAE or Qatar rankings would place either country alongside rapidly developing markets such as Brazil, India and China in the emerging index. Regionally, only Egypt and Morocco are classed within this category.

twitter: Follow and share our breaking business news. Follow us