When the official news finally came out in 2013 that the UAE and Qatar were going to be upgraded to MSCI emerging market status — enabling more global institutional money managers to at last consider equities on these two regional exchanges — commentators predicted the change would have a positive economic impact. And provide a longer term boost to liquidity from foreign investment.

Some even thought the upgrade might alter the underlying structure of these markets, rebalancing them away from a heavy retail element to include an important, more informed and professional institutional component.

Despite all the hype, over a year on from the event, the substantial benefits that most expected have not materialised. Barring a brief reprieve during April and May this year, the MSCI Emerging Markets Index’s trend has continued downward, and it has lost about 20 per cent in value since the two Gulf countries were added.

If you look at the more relevant metric of foreign investor fund flows into the UAE and Qatar since their upgrades, they too have decreased since May 2014. According to a study undertaken by Ipreo, active investment dropped from $450 million in March 2014 to around $420 million in June. This is the opposite impact that some people were expecting to happen.

So, the real question is: why hasn’t the MSCI upgrade had the positive, almost transformative, impact everyone wanted and many expected to see?

Of course, there are some significant macroeconomic and geopolitical factors, some regional and others global, that have not helped the local exchanges, most notably the considerable fall in oil prices. Add to that concerns over the robustness of China’s economy, tumbling commodity prices generally, and a dramatic slowdown in Brazil, and it is of little surprise that foreign investors are shunning emerging markets in preference of developed economies.

MSCI upgrades also tend to happen during an upswing in the economy, but then this cycle inevitably turns. One could argue that this perhaps partly explains the current disappointment with the market’s performance.

Can these factors explain everything though? And could local companies be doing more to reassure potential foreign investors, especially at a time when emerging markets are less attractive to global money managers?

The short answer is yes, they can be doing more.

Quality corporate governance, transparency and investor relations lie at the heart of reassuring investors. While many companies in the region have started to appreciate the importance of corporate governance and its link to achieving shareholder value, only a handful of the more forward-thinking firms have realised that to be taken seriously by foreign investors, internal reporting structures need to modernised and access to the board of directors improved.

Too many hide the board away.

Speaking at the Middle East Investor Relations Society’s annual conference, Andreas Posavac from Ipreo, said: “[Local] Companies attracting international money have the transparency and disclosure standards of international firms.”

That may sound obvious, but putting the point more starkly, those firms that are committing to global standards of best practice are already reaping the reward in terms of interest from foreign investors.

They are ahead of the curve.

Another key requirement for international investors is that companies are able to adapt to change and communicate its impact to the market efficiently and effectively, using the right methods of communication as required. Markets understand that volatility happens, but what they really dislike is uncertainty.

Local companies need to understand this so open and timely communication is vital.

Given the bearish environment for global fund flows at present, it is hard to fully judge the success of the MSCI integration for Qatar and the UAE. While challenging macroeconomic and geopolitical issues continue, regionally and worldwide, foreign investors will likely remain sceptical and downward pressure will be a prolonged feature for the MSCI emerging market index.

However, proactive local management teams should be thinking about the upturn and implementing positive internal change now.

To lure the foreign investor, local companies need to ensure they have globally recognised corporate governance in place, with proper reporting structures.

The writers are members of Bell Pottinger Middle East’s Financial Practice.