Foreign funds are flowing into the United Arab Emirates and Qatar as those markets prepare to be upgraded by global equity index compilers this year - but so far only a few top blue chips are benefiting much, a Reuters study of trading data shows.
At the end of May, MSCI will raise the UAE and Qatar to emerging market from frontier market status. S&P Dow Jones Indices will do the same in September.
By putting those countries on the radar screens of international fund managers, the upgrades are expected to bring billions of dollars of fresh money to the markets. The data shows the inflows of funds have already begun.
But it also indicates that only a handful of stocks, such as Dubai's Emaar Properties and Qatar National Bank , are getting the lion's share of the money, while most stocks are being neglected - a trend that may leave the top stocks vulnerable to profit-taking in coming months.
"Possibly it is due to liquidity and free float conditions. For stocks in the UAE and Qatar, there is quite a big difference in terms of how much is available for foreigners," said Simon Kitchen, director of regional strategy at EFG Hermes.
"There are large-cap stocks like Emirates NBD which foreigners would like to buy but which have tight foreign ownership limits. Investors are forced into a limited number of stocks."
Another factor may be uncertainty over exactly which individual stocks will be included in the revised MSCI and S&P Dow Jones emerging market indexes; investors are sticking to a few stocks which seem absolutely certain to be chosen.
The foreign fund inflows will come in two forms. Passive funds, which directly track MSCI and S&P Dow Jones indexes, are expected to buy the stocks which are included in the revised emerging market indexes, in the same weightings.
The experience of Greece, which was downgraded to emerging market from developed market status last November, suggests passive funds only enter markets on the eve of index changes, EFG Hermes says.
The volume of such funds looks likely to be small; analysts at HSBC have projected MSCI-related passive inflows into the UAE and Qatar at about $500 million for each country. Flows related to S&P Dow Jones will be smaller, fund managers believe.
EFG Hermes expects even smaller gross MSCI-related passive inflows of about $270 million into the UAE and $220 million into Qatar - and they would be partly offset by outflows of some $100 million each from passive funds tracking MSCI's frontier index.
These numbers are not large compared to the size of the markets; UAE bourses have a combined capitalisation of around $250 billion and Qatar's capitalisation is about $185 billion.
The bigger impact will come from active funds, which benchmark themselves against indexes more loosely and have much more flexibility with allocations and timing; they will be drawn by the "halo effect" of markets' higher status.
Active fund inflows are harder to project but VTB Capital estimates Qatar may attract as much as $2.6 billion of such money as a result of the MSCI upgrade, with the UAE drawing up to $2.3 billion.
The data shows some of that money has already arrived. According to figures from Dubai Financial Market, the emirate's main stock exchange, investors from outside the Gulf increased their holdings of listed shares to $11.8 billion on March 16 from $8.5 billion at the end of last year.
Part of that rise was due to higher share prices, but while market capitalisation grew 23.2 percent in that period, the value of stocks held by foreigners jumped 38.3 percent. This implies that foreigners invested a net $750-970 million in Dubai, Reuters calculations indicate.
Abu Dhabi's bourse actually saw a small net outflow in the period, mostly because foreigners pulled $152-167 million out of First Gulf Bank, reducing their combined stake by 1 percentage point, the calculations show.
In Qatar, net inflows of foreign money - from all sources including the Gulf, since Qatar does not break out the data - totalled $790-848 million, according to Qatar Exchange and Thomson Reuters data.
In the Dubai Financial Market, inflows from Gulf Cooperation Council countries account for about 10-13 percent of total inflows. Assuming a similar proportion in Qatar implies it attracted $688-763 million of non-Gulf foreign money between the end of last year and mid-March.
These figures suggest there is room for substantial inflows of active funds into the UAE and Qatar to continue at least until the end of May, when there will be a burst of passive inflows.
But it is striking how narrowly the fund inflows to date have been focused. One huge recipient has been Emaar, Dubai's largest listed company, which attracted $570-800 million - roughly three-quarters of flows into Dubai Financial Market.
Most of the rest of flows into Dubai Financial Market were into two Kuwaiti companies with cross-listings in Dubai: Agility and National Industries Group. This may be because Kuwait's weighting in the MSCI frontier index will increase in May.
Fast-growing Dubai construction firm Arabtec received inflows of only $15-28 million as foreign investors' holdings in it grew to 36.7 percent from 36.1 percent. Shares in Dubai Financial Market itself actually saw foreign outflows of $5-7 million.
In Qatar, Qatar National Bank received the lion's share of inflows: about $290 million. Doha Bank, Commercial Bank of Qatar and Qatar Electricity and Water Co drew between $60 million and $80 million each.
In the case of Emaar, fund flows were boosted in part by the company's conversion of most of a $500 million convertible bond into equity during the period.
But the focus on just a few top blue chips also suggests foreign investors are playing it safe until May 14, when MSCI is due to announce the final list of constituents of its new emerging market index.
In the meantime, MSCI has released a provisional list, which for the UAE comprises Emaar, port operator DP World, Aldar Properties, National Bank of Abu Dhabi , Abu Dhabi Commercial Bank, First Gulf Bank, Dubai Financial Market and Arabtec.
Some analysts believe Dubai Islamic Bank may also be included in the final list.
For Qatar, the provisional list comprises Islamic lender Masraf Al Rayan, Qatar National Bank, Doha Bank, Qatar Islamic Bank, Commercial Bank of Qatar, conglomerate Industries Qatar, Qatar Electricity and Water Co and mobile phone operators Ooredoo and Vodafone Qatar.
When the final list is announced, money which has already accumulated in the top stocks could flow into less prominent index constituents whose inclusion had appeared less certain, some fund managers believe.
Also, EFG Hermes says some active foreign investors may be building positions with the intention of selling to passive funds around the time of the MSCI upgrade. This means share prices could actually fall back at that time.