Al Bhatti
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June 12, 2013
The long wait for market upgrade is over
MSCI upgrades status of the UAE to an emerging market
The UAEs five-year wait for inclusion in the MSCI Emerging Market Index finally ended on Wednesday as the New York-based index provider upgraded the country from its erstwhile frontier market status. Qatar, in the running for the same period, was elevated too.
Expectedly, UAE shares rose on Wednesday as the Abu Dhabi Securities General Index advanced the most since 2009. Dubai also ended in positive territory and Qatars benchmark QE Index surged to its highest level in five years.
However, in the Mena region, MSCI downgraded Morocco from emerging to frontier market status and said Egypts emerging market status may be reviewed and its current status downgraded if its foreign currency situation worsens.
International institutional investors recognised the improvements made by the Emirati regulator [ESCA], the Dubai Financial Market and the Abu Dhabi Securities Exchange, MSCI said after announcing its decision after 1am on Wednesday night.
Improved trading volumes, better accessibility to markets and higher foreign ownership limits have been some of the reasons that led MSCI to reclassify the two markets.
Efforts pay off
This is a significant development because it recognises the reforms that have been made in recent years to improve the operational efficiency and infrastructure of the secondary markets in both countries, said Georges Al Hedery, HSBCs Head of Global Markets Mena. The time it has taken to get the classification evidences the rigour associated with the process and the seriousness which foreign investors attach to this review.
Expressing delight at the development, Eisa Kazim, managing director and CEO, Dubai Financial Market (PJSC), said: The reignited interest of local and foreign investors towards DFM since the beginning of the year underlines that what we have implemented caters to investors expectations and the attractiveness of the UAE market to foreign investments. Kazim said.
MSCIs decision is being seen as a milestone event in the development of equity capital markets in both the countries, which are now expected to attract liquidity from global institutional investors. The decision takes effect from the end of May 2014.
In a note to its clients late last month, the British bank, HSBC, said an upgradation of the two Gulf markets might see an inflow of $800 million (Dh2.9 billion) into them. UAE and Qatar will have a combined weighting of 0.85 per cent of the MSCI emerging markets index.
Vis-a-vis the near-term impact of the MSCI decision, most analysts view it as encouraging, though some profit-taking cannot be ruled out during summer.
Immediate impact
The immediate impact is going to be positive, said Bassel Khatoun, portfolio manager and co-head, Equity Asset Management at Franklin Templeton Investments Middle East. Being retail-driven markets, the investors are going to look at this as positive news and sentiment is going to improve. Basically, people will look into buying the blue chip companies the largest companies that will be the largest components of MSCI inclusion in their respective emerging market Index.
In the UAE, volumes that have already been strong this year but had dipped in the past few weeks could see an increase again in the days ahead.
But a summer slowdown effect and possibly some profit-taking cannot be ruled out, said Saleem Khokhar, head of equities at National Bank of Abu Dhabis asset management group. I see more volatility in the near term but medium to long term, expect the market to go higher.
As for global investors, Sam Vecht, BlackRocks head of the emerging markets specialist team and portfolio manager of the Frontiers Investment Trust, said the latest decision is unlikely to have any significant near-term impact on how we manage our client portfolios.
We have been broadly positive on both of these countries for the last two years as the combination of economic restructuring post financial crisis, strong earnings growth, depressed valuations, and high dividend yields offer an attractive proposition.
Going forward, analysts and fund managers believe more work needs to be done to attract international investors.
While the upgrade is a significant achievement, it is one step on a longer journey, said HSBCs Al Hedery.
Investor requirements
Some of the other developments that foreign investors would be keen to see in future are a further relaxation of foreign ownership limits, an increase in liquidity and investable stocks in the market and a broader representation of the various sectors among the listed stocks, he said.
Size obviously matters. Any market with a weight of less than 0.5 per cent can easily be ignored or neglected by most of the active managers, said Shakeel Sarwar, head of asset management at Securities and Investment Company (SICO) Bahrain.
The liquidity and free float of a market also need to be reasonable to give comfort to an international institutional investor. And last but not least, regulatory and legal framework, corporate governance standards and the growth or return potential of a market play a critical role in attracting international institutional liquidity, he added.
In a statement released by DFM, Kazim spoke about some measures that will enhance the markets appeal to international investors. We will be implementing securities lending and borrowing together with market making once we have completed the necessary regulatory process. This will further increase the UAEs attractiveness for foreign investments, thereby placing our market in the position amongst international markets, he said.
The long wait for market upgrade is over | GulfNews.com
The long wait for market upgrade is over
MSCI upgrades status of the UAE to an emerging market
The UAEs five-year wait for inclusion in the MSCI Emerging Market Index finally ended on Wednesday as the New York-based index provider upgraded the country from its erstwhile frontier market status. Qatar, in the running for the same period, was elevated too.
Expectedly, UAE shares rose on Wednesday as the Abu Dhabi Securities General Index advanced the most since 2009. Dubai also ended in positive territory and Qatars benchmark QE Index surged to its highest level in five years.
However, in the Mena region, MSCI downgraded Morocco from emerging to frontier market status and said Egypts emerging market status may be reviewed and its current status downgraded if its foreign currency situation worsens.
International institutional investors recognised the improvements made by the Emirati regulator [ESCA], the Dubai Financial Market and the Abu Dhabi Securities Exchange, MSCI said after announcing its decision after 1am on Wednesday night.
Improved trading volumes, better accessibility to markets and higher foreign ownership limits have been some of the reasons that led MSCI to reclassify the two markets.
Efforts pay off
This is a significant development because it recognises the reforms that have been made in recent years to improve the operational efficiency and infrastructure of the secondary markets in both countries, said Georges Al Hedery, HSBCs Head of Global Markets Mena. The time it has taken to get the classification evidences the rigour associated with the process and the seriousness which foreign investors attach to this review.
Expressing delight at the development, Eisa Kazim, managing director and CEO, Dubai Financial Market (PJSC), said: The reignited interest of local and foreign investors towards DFM since the beginning of the year underlines that what we have implemented caters to investors expectations and the attractiveness of the UAE market to foreign investments. Kazim said.
MSCIs decision is being seen as a milestone event in the development of equity capital markets in both the countries, which are now expected to attract liquidity from global institutional investors. The decision takes effect from the end of May 2014.
In a note to its clients late last month, the British bank, HSBC, said an upgradation of the two Gulf markets might see an inflow of $800 million (Dh2.9 billion) into them. UAE and Qatar will have a combined weighting of 0.85 per cent of the MSCI emerging markets index.
Vis-a-vis the near-term impact of the MSCI decision, most analysts view it as encouraging, though some profit-taking cannot be ruled out during summer.
Immediate impact
The immediate impact is going to be positive, said Bassel Khatoun, portfolio manager and co-head, Equity Asset Management at Franklin Templeton Investments Middle East. Being retail-driven markets, the investors are going to look at this as positive news and sentiment is going to improve. Basically, people will look into buying the blue chip companies the largest companies that will be the largest components of MSCI inclusion in their respective emerging market Index.
In the UAE, volumes that have already been strong this year but had dipped in the past few weeks could see an increase again in the days ahead.
But a summer slowdown effect and possibly some profit-taking cannot be ruled out, said Saleem Khokhar, head of equities at National Bank of Abu Dhabis asset management group. I see more volatility in the near term but medium to long term, expect the market to go higher.
As for global investors, Sam Vecht, BlackRocks head of the emerging markets specialist team and portfolio manager of the Frontiers Investment Trust, said the latest decision is unlikely to have any significant near-term impact on how we manage our client portfolios.
We have been broadly positive on both of these countries for the last two years as the combination of economic restructuring post financial crisis, strong earnings growth, depressed valuations, and high dividend yields offer an attractive proposition.
Going forward, analysts and fund managers believe more work needs to be done to attract international investors.
While the upgrade is a significant achievement, it is one step on a longer journey, said HSBCs Al Hedery.
Investor requirements
Some of the other developments that foreign investors would be keen to see in future are a further relaxation of foreign ownership limits, an increase in liquidity and investable stocks in the market and a broader representation of the various sectors among the listed stocks, he said.
Size obviously matters. Any market with a weight of less than 0.5 per cent can easily be ignored or neglected by most of the active managers, said Shakeel Sarwar, head of asset management at Securities and Investment Company (SICO) Bahrain.
The liquidity and free float of a market also need to be reasonable to give comfort to an international institutional investor. And last but not least, regulatory and legal framework, corporate governance standards and the growth or return potential of a market play a critical role in attracting international institutional liquidity, he added.
In a statement released by DFM, Kazim spoke about some measures that will enhance the markets appeal to international investors. We will be implementing securities lending and borrowing together with market making once we have completed the necessary regulatory process. This will further increase the UAEs attractiveness for foreign investments, thereby placing our market in the position amongst international markets, he said.
The long wait for market upgrade is over | GulfNews.com
