Dubai: A reclassification of the UAE and Qatar indices could be a multi-year process, that may take about 8-10 years depending on accessibility for foreign investors, Sebastien Lieblich, head of index research at MSCI told Gulf News.
Last May, the MSCI upgraded the UAE and Qatar indices to an emerging market from frontier markets, a move that made the equity markets part of other emerging markets like China, South Korea, Taiwan among others, and led to billion of dollars in capital flows from active and passive fund managers into the markets.
“The upgrade would be relating to accessibility,' Lieblich told Gulf News. 'The investors that the MSCI would be talking to would have higher requirements in terms of cost effective portfolio and have a seamless accessibility and frictionless operational frame work of markets in our discussions.”
“More time need to be given for these markets in the emerging market context and proven to the investment community that they are stable emerging equity markets. and then we could contemplate a reclassification in developed market and it’s a multi year process and may take 8-10 years,” he added.
Any upgrade to the developed market would require an increase in foreign ownership in companies from the current 49 per cent.
Adjustments
In its review earlier in the month, the MSCI increased its weightage on UAE and Qatar indices on May 13 after inclusion of Emaar Malls and inclusion of a few others.
Emaar Malls stock was added to the MSCI index with a weightage of 7.8 per cent, while the MSCI also increased the weightage of Abu Dhabi Commercial Bank. In Qatar, the MSCI added Qatar Insurance, and Ezdan Holdings.
“The index is supposed to provide the closest representation of investment opportunities for international investors. So by making periodical adjustments we are reflective of the index of the changes that impact the changes in investment opportunities,” Lieblich added.
Attention
“By entering the emerging market index any country would attract the attention of large institutional investors long-term investors and stable money. These investors could bring in some stability in the market also removing some sort of volatility driven by retail investors,” he added.
In its emerging market stable, the MSCI has the maximum weightage to China followed by Taiwan and South Korea. UAE index has a total of 0.6 per cent on the index, while Qatar Index has a weightage of 0.9 per cent.
MSCI emerging market index has representation across 23 emerging markets, with 835 constituents, the index covers about 85 per cent of the free float adjusted capital market capitalisation in each country.
With the inclusion, Lieblich feels that liquidity goes up and the markets benefit with “stable money.”
“We have observed that liquidity has gone up generally speaking and more active trading. It’s track long-term institutional money and that would fuel investment needs of the UAE and Qatari company in the future. Its an efficient way to get access to international investors,” he added.
Review
The index is based on an MSCI methodology, which the index provider said is a comprehensive and consistent approach to index construction that allows for meaningful global views and cross-regional comparison across all market capitalisation size, sectors and style segments and combinations.
This aims to provide exhaustible coverage of the relevant investment opportunity set with a string emphasis on index liquidity, inevitability and replicability.
The index is reviewed yearly in February, May, August, and November. During the May and November semi-annual index reviews, the index is rebalanced and large and mid-capitalisation cut-off points are recalculated.
