The UAE is still firmly on track to receive an upgrade to emerging market status, industry analysts said Wednesday after index compiler MSCI delayed its decision until December.
Morgan Stanley Capital International (MSCI) said its classification review period had been extended for six months to allow market participants extra time to "assess the impact of the recent positive changes implemented" in the UAE and Qatar.
The MSCI global equity indices serve as the basis for over 400 exchange traded funds throughout the world.
The UAE is currently categorised as a ‘frontier market' but an upgrade would boost liquidity in the market place and put the country's bourses on the radar screens of a much wider group of institutional investors.
"The delay is a positive sign in that it gives the UAE and Qatar more time to tick all the boxes and achieve certain milestones," said Husam Hourani, managing partner in the Dubai office of law firm Al Tamimi and Company.
"Foreign ownership is a sensitive issue but MSCI likes the fact that the UAE permits 49 per cent [foreign direct investments], which could increase further in certain sectors under a new companies law due by the end of this year," he added.
In a statement released on its website, the MSCI said investors welcomed the implementation of new delivery versus payment (DvP) settlement models in the UAE and Qatar.
But the index compiler said few market participants had made a full assessment of the new systems as they were only introduced in May.
The issue of foreign ownership limits also remains a concern, especially in Qatar, which has not upped its foreign ownership limit from 25 per cent to 49 per cent, a key prerequisite to an MSCI upgrade to emerging market status.
In the UAE, it is up to individual companies to set their own levels of overseas ownership.
"This is a good outcome for the UAE and Qatar as the MSCI has been clear and transparent in its decision," said Arindam Das, regional head of HSBC Securities Services, Middle East and Africa.
"[The] MSCI has also differentiated between the two markets, so both are clear on the action needed before they can be included. I do not think investors in either market were expecting an upgrade so this should be seen positively."
"The six-month time period [set by MSCI] to fix the issues means there is a defined window for specific action, and it is six months instead of 12, which the market was expecting," he added.
The Dubai Financial Market General Index dropped 1.83 per cent yesterday to a three and a half week low of 1,549.61 with property and construction stocks weighing heavily on the bourse. The Abu Dhabi Securities Exchange ended almost flat, gaining 0.03 per cent to 2,732.54.
Saleem Khokhar, head of the asset management group at National Bank of Abu Dhabi, said initial market reaction could be negative but believes the UAE and Qatar both remain on track to receive an upgrade in December.
"Expectations are for the UAE market to start pricing in this news over the coming months as the market trades at a deep discounted valuation compared to emerging markets and the rest of the GCC," he said.
"[The] MSCI has taken the very unusual decision to review the decision again in December rather than after the usual one year period. This is a positive announcement for the UAE as the market had been assigned a low probability [rating] for an upgrade during 2011," he added.
From / Gulf News