Middle East Nations Capitalise on Liquidity and Stock Sizes to Attract More Foreign Investors

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Doha Qatar Skyline
Doha skyline. Foreign Investors find ease to invest in the Middle East thanks to the market-friendly regulations and corresponding increase in stock sizes and liquidity

The economic boost in the Middle East has also extended to the stock market and stock market indices in the region. Most significant in this context are the stock markets in the UAE and Qatar which have gone up substantially since the provisional list of stocks was released by MSCI (Morgan Stanley Capital International) in June last year.

Reasons for this increase can be attributed to the improvement in the liquidity and size of the stock markets which have also accounted for many stocks from these two markets to be included within the MSCI EM (Emerging Markets) Index. Shedding light on this development is a recently conducted analysis by Deutsche Bank which has found out that about 27 stocks, divided in the ratio of 15 stocks to 12 stocks between Qatar and Dubai respectively, meet the selection criteria of MSCI to be incorporated into its provisional list of EM Index.

Since June 2013, Qatar has outperformed the MSCI EM index by 17% and UAE by 57%. Deutsche Bank’s research team believes that this re-assessment and re-rating in relative market capitalization will push up these two nations’ weights even more in the EM index once the final list of constituents is announced by MSCI. The two countries led the region in fund inflows last year, bringing in a total of US$ 1.8 billion – of which Qatar received US$ 848 million while the UAE had US$ 954 million of inflows. With the increased market focus that comes with EM status, Qatar and UAE will thus be able to attract even stronger foreign fund inflows.

According to the Bank’s leading research analyst, Mr. Aleksandar Stojanovski, this number reflects an increase from the previously listed stocks in the MSCI EM Index from these two nations. He explains, ‘We expect the inclusion of more stocks to also drive a higher weighting of around 1.3% versus 0.95% previously, which in turn should also push more liquidity into the two markets when Qatar and UAE are officially inducted from 2nd of June 2014. Market conditions are turning favourable for foreign investors.’

He also adds, ‘Liquidity in MENA markets is on an upward trend, with 2014 YTD average daily trading volume for UAE at 700 million+ US$, a 10-year high, and Qatar at 185 million US$, near its 2008 peak. Companies have also begun to look favourably at foreign ownership and some have increased their FOLs.’

FOLs (Foreign Ownership Limits) refer to the internal limits on foreign investments set by countries. In the first three months of 2014, there were pointed revising to the FOLs of liquidities and stocks which in turn relaxed the norms and stringent regulations for foreign investment in these key economic areas. DIB, Deyaar, Mashreq Bank, UPP and Al Khaliji Bank are some of the organisations that eased their FOLs to benefit their overall output and even benefit the entirety of the Gulf economy.

It is expected that MSCI will finalize the constituent list for Qatar and UAE in their May Semi-Annual Index Review (SAIR) and an official release to confirm the same can be expected on 14th May 2014. Following this, stocks from these two countries will be officially part of the index from 2nd June 2014, with increased market size and better liquidity as compared to July 2013. When Qatar and UAE will be officially inducted into the MSCI EM index, needless to say, more funds will flow into the market because these markets will then come under the purview of passively managed funds tracking the EM index, corroborates Deutsche Bank.


Photo-Beetle Bailey/Flickr

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