Much has been made of the forecast millions of dollars of investment that the equity markets of the UAE and Qatar are expected to receive when their stocks are included in MSCI's emerging market listings from June.
In the latest forecast, EFG-Hermes, the Egyptian investment bank, said that the move would net the UAE exchanges US$538 million and Qatar US$475m.
But aside from the cash, the upgrade of the markets from their previous frontier markets status is also expected to provide an impetus to the economy in other ways.
EFG-Hermes believes the move could help to usher in a new era in local bourses, challenging the dominance of state-owned companies and barriers to foreign ownership of shares.
“Equity markets in the GCC are as much a means of distributing wealth – deriving from oil and gas revenue – as of raising capital,” wrote analysts for the bank on Thursday.
“However, we believe there is potential for the balance to shift away from distribution towards true intermediation as the non-oil economies of Qatar and the UAE develop and as the regulatory environment becomes more favourable.”
Evidence of the beginnings of a shake-up in the equities landscape has already been visible in the run-up to June 1. The Dubai-based bank Mashreq and the property developer Deyaar are among several UAE companies to raise the limit on foreign ownership of their shares. In Qatar, Al Khaliji Commercial Bank has also raised its foreign ownership limit. More are expected to follow in a bid to capture greater investment from the MSCI upgrade.
Regulators are also coming under greater pressure to overhaul rules increasingly viewed as potential obstacles to foreign capital. In the UAE, a new companies law is expected to raise the 49 per cent cap on foreign ownership of shares in some sectors. The same law should reduce the minimum free float from 55 per cent to 30 per cent. Existing IPO requirements have played a part in encouraging the past three UAE companies to list to choose London, rather than local markets.
“There may be shift towards enhanced regulation, more transparency and a lot more maturity in the way that the markets expect issuers to behave,” said R Seetharaman, the chief executive of Doha Bank. “This will also encourage investor confidence, both from global investors and from regional investors.”
He said the MSCI upgrade should encourage more listings, particularly by family-owned businesses, which have until now been cautious about giving up too large a slice of their business through a public sale.
Unlike traditional emerging markets, both the UAE and Qatari exchanges suffer from a lack of diversity in their listings. Financial services and property companies dominate, representing 67 per cent of the UAE market capitalisation and 54 per cent of Qatar’s.
Officials are keen to broaden the mix of sectors listed to include more retail, health care and other consumer companies. Greater variety would better reflect the breadth of the non-oil economy and offer more companies alternative sources of financing.
tarnold@thenational.ae
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