Crunch time for Qatar, UAE stocks

December 14, 2011

Index compiler MSCI will announce tonight at 2300 GMT whether or not Qatar and United Arab Emirates get an upgrade to the firm’s flagship global emerging market stock index from their current slots in the frontier market index.

If any Qatari or UAE stocks get into the index, they are likely to make up only a small percentage of the benchmark, which has heavy weightings for countries like the BRIC nations and South Korea. But the move would attract investment from the many funds who measure their performance against the index, and might prefer not to deviate too far from it.

Qatar and UAE were due for a possible upgrade earlier this year, but MSCI gave them another six months to allow market players to assess new delivery-versus-payment (DvP) settlement systems.

MSCI has also said Qatar might not make it because of its 25 percent foreign ownership limit — foreign ownership needs to be “significant” to ¬†meet emerging market index criteria.

Most players don’t expect Qatar to get upgraded tonight because of the foreign ownership issue and there are also doubts about UAE.

If MSCI surprises, the stock markets are likely to get a boost — Dubai stocks are trading close to 2004 lows, and Abu Dhabi near 2009 lows, though Qatar has had a relatively good year.

According to Emad Mostaque, MENA strategist at Religare Capital Markets in London:

The UAE is more likely to be upgraded than Qatar as the latter has not raised its foreign ownership limits, a key concern raised by MSCI. Both have introduced delivery versus payment  models requested by MSCI, although the efficacy of these models is still a concern. If the UAE is not upgraded this time, it is likely to receive an upgrade next summer when the next review takes place.






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