UAE, Qatar get emerging market status

Dubai: Global markets index provider MSCI late on Wednesday officially reclassified the MSCI UAE and MSCI Qatar Indexes from Frontier Markets to Emerging Markets, coinciding with the May 2014 Semi-Annual Index Review.

“MSCI’s reclassification of these countries and their upcoming inclusion in our flagship MSCI Emerging Markets Index reflects the broader global opportunity set available to international institutional investors today,” said Baer Pettit, Managing Director and Global Head of the MSCI Index Business.

As part of the May 2014 Semi-Annual Index Review, there are no additions and one deletion from the MSCI UAE Index, resulting in nine constituents.

The nine companies in the UAE Index are Abu Dhabi Commercial Bank, Aldar Properties, Arabtec, DP World, Dubai Financial Market, Dubai Islamic Bank, Emaar Properties, First Gulf Bank and National Bank of Abu Dhabi.

“The UAE and Qatar have strong diversified economies with solid financial backing and limited risks which foreign investors would find very appealing. The MSCI upgrade is a testament to the strengthened investor confidence resulting from the visionary strategy of the UAE leadership to establish a business environment that allows ease of business, openness to foreign investment and transparency on all accounts,” said Jeffrey Singer, CEO of DIFC Authority.

Both these markets have seen increased capital market activity over the last few months and it is widely anticipated that the positive impact will continue in the future. “The MSCI upgrade is a positive indication that the UAE and Qatar are developing as markets and that significant improvement has been made towards meeting global corporate governance and transparency standards,” said Khaled Sifri, Chief Executive Officer of Emirates Investment Bank.

While much of the impact has been priced in already — as seen by the equity market rally these past few months — the long-term implications should see significantly enhanced market stability and liquidity.

“The decision to upgrade these two markets dates back to June last year. As such, the impact on prices and average daily volume happened already, which does not mean that we could not see an additional impact when the new index composition is published when passive investors will kick in,” said Matthieu Belondrade, Head of Global Emerging Market Equities at Natixis Asset Management.

The MSCI UAE Index has a pro forma weight of 0.58 per cent in the MSCI Emerging Markets Index, based on data as of April 17, 2014.

There are five additions and one deletion from the MSCI UAE Small Cap Index, bringing the number of constituents to ten. The MSCI UAE Small Cap Index has a pro forma weight of 0.85 per cent in the MSCI Emerging Markets Small Cap Index.

The three largest pro forma constituents of the MSCI UAE Index are Emaar Properties (weight of 20.08 per cent), Aldar Properties (weight of 16.02 per cent), and DP World (weight of 13.84 per cent).

“The decision by MSCI to raise UAE and Qatar from frontier-market to emerging-market status, effective end of May 2014, serves to underline this growing prominence and marks an important step, we believe, in the formation of the MENA region as a single, identifiable (if not homogenous) subset within the emerging market equity investment universe along the lines of Latin America and Central and Eastern Europe,” said Bassel Khatoun, Co-Head MENA Equity Local Asset Management — MENA at Franklin Templeton Investments.

The MSCI Qatar Index included companies such as Al Rayan Bank, Barwa Real Estate, Commercial Bank of Qatar, Doha Bank, Ooredoo (telecoms) Qatar Electricity & Water, Qatar Industries, Qatar Islamic Bank, Qatar National Bank and Vodafone Qatar.

Analysts said the upgrading of the UAE and Qatar to Emerging markets will improve their relative attractiveness among the regional markets. “On top of the index inclusion, we have to consider that Qatar and UAE will be included in the regional MSCI EM EMEA Index, where the 2 biggest components are South Africa and Russia. Considering the current lack of investor enthusiasm for these two countries, this might reinforce the attractiveness of Qatar and UAE in the short term, being perceived as being more defensive in the current market environment,” said Francois Theret, head of Global Emerging Equities at Natixis Asset Management.

In the case of Qatar, there were no additions to the earlier list, but there were three deletions from the MSCI Qatar Index, resulting in a total of ten constituents. The MSCI Qatar Index has a pro forma weight of 0.47 per cent in the MSCI Emerging Market Index.

The three largest constituents of the MSCI Qatar Index are Al Rayan Bank (weight of 25.90 per cent), Ooredoo (weight of 17.82 per cent), and Qatar National Bank (weight of 12.04 per cent).

There are two additions and three deletions from the MSCI Qatar Small Cap Index, bringing the number of constituents to eleven. The MSCI Qatar Small Cap Index has a pro forma weight of 0.64 per cent in the MSCI Emerging Markets Small CapIndex.

The three largest additions to the MSCI Emerging Markets Index measured by full company market capitalisation are Qatar National Bank (Qatar), Industries Qatar (Qatar) and National Bank of Abu Dhabi (UAE).