The UAE will be welcomed in the emerging markets because of significant improvements in market technology and transparency. The UAE is also enjoying strong economic fundamentals and a swift recovery in the real estate market, which has helped its stock market surge by an impressive 47 percent this year. It has outperformed all markets covered by MSCI, including developed markets.
The UAE failed to win an upgrade last year due to some MSCI requirements related to custody, clearing and settlement. Two of the UAE’s three stock exchanges, Dubai Financial Market and the Abu Dhabi stock exchange, have now addressed the issues by introducing a delivery versus payment (DvP) model and a so-called “false trading mechanism”. The system abandons the previous requirement for international investors to have a dual-account structure so that the access of local brokerages’ to their trading account could be limited.
However, Qatar is likely to miss out on the index upgrade largely due to its stringent foreign ownership limits.
During this week, Qatar has tried to improve its chances of an upgrade by announcing that two large banks have requested an increase in the number of shares available to foreign investors.
Both Gulf countries had been under review since 2009 by the index compiler Morgan Stanley Capital International (MSCI) for a possible upgrade. The two markets currently enjoy frontier status, but any upgrade could open them for several millions of dollars of inflows from funds that are mandated to invest only in emerging markets. It is estimated that an upgrade would allow the UAE to attract up to USD 370 million in inflows from global funds that track the MSCI emerging market index.