Middle Eastern neighbors United Arab Emirates and Qatar are facing off in the race to be designated as an “emerging market” by influential index compiler Morgan Stanley Capital International.
Right now, the two countries are lowly “frontier markets.” Upgrading their status would open up their stock markets to millions of dollars of investment from funds that are mandated to invest only in emerging markets. The MSCI has denied the two countries an upgrade since 2009 due to problems of market accessibility and transparency. Since then, UAE and Qatar have come along way in opening up to international markets.
For instance, Qatar said it is making “extensive efforts” to increase foreign ownership limits for its publicly listed companies. Foreign ownership is limited to 25% for most stocks listed on the Doha exchange.
UAE too has addressed requirements related to custody, clearing and settlement. Investors have responded positively; Dubai’s stock exchange has rallied over 47% this year, making it the best performing index in the region. Qatar’s benchmark QE index has gained 11% this year, which has outstripped the 5% drop in MSCI’s benchmark emerging market index.
A seal of approval from MSCI on June 11 would be a boon for the stock markets of both nations. In a report out on Sunday, HSBC said that the upgrade could prompt more than $430 million to flow into Qatar and about $370 million to enter the UAE.
The Gulf states received a vote of confidence from influential global investment management firm T. Rowe Price, which stated in May that both nations deserved the upgrade, as they met “more of the criteria than other countries that have been upgraded before.”