MSCI upgrade for UAE well-deserved

Yesterday’s upgrading of the UAE’s stock markets to emerging market status is both an acknowledgement by the world of the country’s financial stability and an opportunity for local companies to capture more international investments, especially those in the banking and telecommunications sectors. Morgan Stanley Capital International (MSCI), one of the world’s most cited index compilers, whose equity indices are tracked by investors with about $7 trillion (Dh25.74 trillion) in assets, was expected to upgrade the UAE’s markets. The UAE will formally join the index in mid-2014 with a 0.4 per cent weight in the MSCI Emerging Markets Index.

The upgrade will allow the UAE’s $152 billion stock markets to continue one of the world’s best equity rallies this year. The Dubai market has surged 48 per cent and Abu Dhabi’s has risen 39 per cent, the third and fifth-best performing gauges globally among 94 tracked by Bloomberg. According to HSBC, today’s upgrade, which also included Qatar, has the potential to draw $800 million of new funds into Qatari and UAE shares.

However, while the Dubai and Abu Dhabi markets earned the right to celebrate their upgrade, both markets need to take heed of what the MSCI did to other markets around the globe. Morocco is being downgraded to frontier market status, while Greece was downgraded to emerging markets — with an even smaller weighted percentage than the UAE. Egypt was also warned that it could lose its emerging market status.

In the short term, these downgrades and warnings can offer a boost to local markets as investors weary of turmoil in North Africa and Southern Europe look for other safe havens with better returns. Thanks to its new status as an emerging market, the UAE’s bourses will stand out as a wonderful opportunity not to be missed.

But these downgrades and warnings should serve as a reminder that what has been granted can also be taken away. The market regulators need to ensure that markets’ rules are followed and investors do not face undue risks, such as insider trading or other predatory pressures. The UAE has shown it deserves the upgrade status. Now, everything should be done to ensure it is retained.