MSCI extends review period for UAE's potential reclassification

The index provider MSCI has extended its review of the Emirates and Qatar to the end of the year.

Traders on the trading floor of the ADX. Nicole Hill / The National

Index provider MSCI said it will extend the review period for the potential reclassification of the UAE and Qatar to “emerging markets” status to the end of the year in order to give additional time for market participants to assess recent enhancements on the Qatari and Emirati markets.

The index company currently categorises both countries as a “frontier” market. An upgrade could attract new liquidity to the country’s bourses and drive index fund investment, which has declined in recent years,

Video: No change in Dubai's frontier market classification

Last Updated: Date here, 2011 UAE

The markets react to the news that the improved MSCI status hoped for will have to wait.

MSCI said the extended time period for the review will provide ample time for market participants to assess the impact of a newly introduced settlement system.The delivery versus payment system, a requirement made by the index provider, is a procedure in which payment for a security must be made when the security is delivered. Usually, the payment is made to a bank, which in turn pays for the security.

“Given that the new delivery versus payment models were introduced only in May, few market participants have had the opportunity to make a full assessment yet,” MSCI said in a statement at 1am local time. “International institutional investors welcomed the introduction of new DVP models that have been implemented on the Qatar Exchange, Dubai Financial Market and Abu Dhabi Securities Exchange,” the statement added.

The potential reclassification will be extended to December this year and would be incorporated into the emerging markets indices at the earliest as part of the November 2012 semi-annual review.

MSCI also cited that foreign ownership limits in Qatari companies remain a concern among institutional investors, and under current conditions the country would not qualify for emerging markets.

“This point has been more strongly voiced for the Qatari market as large companies, such as Industries Qatar, have almost reached their foreign ownership limit and became quasi-uninvestable for foreign investors,” the statement said.