Bloomberg News

U.A.E., Qatar Fail to Secure Upgrade to Emerging by MSCI

December 15, 2011

(Updates prices from sixth paragraph.)

Dec. 15 (Bloomberg) -- The United Arab Emirates and Qatar failed for a second time this year to secure an upgrade to emerging-market status at MSCI Inc., as the Persian Gulf countries struggle to revive equity trading.

MSCI, whose stock indexes are tracked by investors with about $3 trillion in assets, will maintain the two countries’ frontier status and keep them under review for potential reclassification in June, it said in a statement. The index provider cited investors’ concern over the effectiveness of the countries’ delivery versus payment model, and Qatar’s failure to announce plans to relax its foreign ownership laws.

Trading volumes in Persian Gulf stock markets have plunged this year as foreign funds trimmed holdings of riskier assets amid regional uprisings and as Europe’s debt crisis deepened. Dubai volumes are at a six-year low and Qatar’s are about 40 percent lower than in the same period in 2009.

“I would have been happy if they said the lack of liquidity in the markets was one of the main reasons for their decision, but they didn’t, so I feel that they evaded the issue,” CapM Investment PJSC’s Abu Dhabi-based Chief Investment Officer Mohammed Ali Yasin said today. “I don’t think it was unexpected because the market conditions in December aren’t better than what they were in June.”

Safeguarding Assets

MSCI’s decision came after a delay in June to allow investors time to assess the DVP models the exchanges in both countries implemented. Market participants said there are “significant concerns over the effectiveness of this new framework to fully ensure the safeguarding of their assets under certain circumstances,” the index provider said its latest statement.

Dubai’s DFM General Index fell 1.8 percent, its biggest drop since Nov. 1, at 12:16 p.m. in Dubai. Abu Dhabi’s ADX General Index declined 0.8 percent and Qatar’s QE Index lost less than 0.1 percent.

“Initially you may see some pressure on the shares that were probably expected to be included in the index, like Emaar Properties PJSC and Arabtec Holding PJSC, but all in all we’re going to continue in our sideways motion,” Yasin said.

Emaar’s shares tumbled 4.7 percent, the most since August, and Arabtec lost 0.6 percent.

MSCI, which tracks economic development, trading volumes and market accessibility to assess market classifications, raised Israeli equities in June 2009. The country’s benchmark TA-25 Index surged 75 percent that year.

Improving Liquidity

“The main challenge is to improve the liquidity of the market and in particular to make it more accessible to foreign investors,” Paul Cooper, the Dubai-based managing director at Sarasin-Alpen & Partners Ltd., which oversees more than $500 million in the Middle East, said before the decision. “Raising the foreign ownership limits will therefore be the biggest challenge.”

Qatar’s exchange doesn’t expect foreign ownership limits in companies, currently at 25 percent, to be raised next year, or that short-selling will be introduced, Chairman Hussein al- Abdullah said Dec. 4.

“Any change to the status of the MSCI Qatar Index is conditional upon a meaningful increase of foreign ownership limit levels applied to Qatari companies resulting in increased foreign room,” the index provider said.

Qatar, the host of the 2022 soccer World Cup with a population of about 1.7 million, forecasts economic growth of about 16 percent in 2011. The International Monetary Fund expects the nation to have the world’s fastest-growing economy for a second year. U.A.E. economic growth will accelerate to 3.3 percent this year from 3.2 percent in 2010, according to the fund’s estimates published in its World Economic Outlook in September.

--With assistance from Zahra Hankir in Dubai. Editors: Claudia Maedler, Shaji Mathew

To contact the reporters on this story: Tal Barak Harif in New York at tbarak@bloomberg.net; Dana El Baltaji in Dubai at delbaltaji@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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