Hanging by a Thread

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MSCI Inc., a leading provider of investment decision support tools to investors globally, further delayed its decision on whether to raise UAE and Qatar to emerging-market status.

However, since these two countries have implemented delivery-versus-payment, a program for completing stock transactions, may help lift their rankings.

South Korea and Taiwan also failed to impress MSCI to win the developed-market designation and is still considered as emerging markets.

The two countries will be evaluated again for a shift in 2012.

Remy Briand, the global head of index research at MSCI Inc, said that MSCI criteria will allow investors to review the impact of the changes. He also added ?The MSCI criteria include a period of market participant assessment and feedback. This is to allow various institutional investors to actually experience their trades and settlement through the new system over a period of time. We will review and get feedback over the next few months.?

Emerging-Market Index

Dubai?s DFM General Index (DFMGI) retreated by 1.8 percent since May, while Abu Dhabi?s ADX General Index and Qatar?s QE Index did not show any change. The overall market reaction is dull; traders have not put on huge trades.

According to data compiled by Bloomberg, equities in UAE are valued at $110 billion and Qatar?s at $121 billion. Stocks from South Korea and Taiwan are included in the $7.89 trillion MSCI Emerging Market Index.

An upgrade of the U.A.E. and Qatar market status is likely to draw more investors, as fund managers buy their shares to mirror MSCI?s indexes. Israel?s TA-25 Index increased by 64 per cent in dollar terms after the announcement of the country?s promotion to developed-market status.

Foreign Ownership

UAE and Qatar

MSCI follows ?stringent foreign ownership limits?. This means limited availability of shares to foreign investors, while remaining concerns for the country.

Under the existing U.A.E. law, foreign companies must have nationals as their sponsors and a maximum of 49 percent ownership of businesses, except in free zones. Qatar caps the overseas ownership at 25 percent.

Arindam Das, regional head at HSBC Securities Services, commented that ?This is a good outcome for the U.A.E. and Qatar as the MSCI has been clear and transparent in its decision and It has also differentiated between the two markets so that both are clear on the action needed before they can be included.?

South Korea and Taiwan

South Korea and Taiwan were not upgraded and there were issues to be resolved. This includes lack of full currency convertibility and ?rigidity? of the countries? investor identification systems. South Korea also has ?anti-competitive? practices relating to stock market data.

MSCI is requesting South Korea scrap the rule that the index compiler need an approval from Korea Exchange Inc. in order to list futures and options overseas based on the MSCI Korea Index. However, the bourse has not taken the request seriously. Kong Do Hyun, an exchange spokesman said that the performance at the bourse is irrelevant to the upgrading of the nation to a developed status.

But it is a serious blow to the investors; they will now be restricted to purchases of equities belonging to developed nations.

Source: Wall Street Journal


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