Company cites ‘stringent’ foreign ownership caps as key concern for the Gulf states
MSCI, whose stock indexes are tracked by investors with about $3 trillion in assets, delayed its decision until December on whether to raise the UAE and Qatar to emerging-market status from its frontier classification.
South Korea and Taiwan failed to win the developed-market designation from MSCI, which currently considers them emerging markets, according to a statement yesterday.
The two countries, Asia’s biggest developing economies after China and India, will be evaluated again for a shift in 2012.
Introduction of the so-called delivery-versus-payment, a program for completing stock transactions, may help lift UAE and Qatar from their frontier-market rankings.
MSCI’s delay of the decision will allow more time for investors to assess the impact of the changes, the New York-based index provider said.
“The new system has been implemented; however, the MSCI criteria include a period of market participant assessment and feedback,” said Remy Briand, the global head of index research at MSCI. “That’s really why we have this extension of the review: In order for various institutional investors to actually experience their trades and settlement through the new system over a period of time. We will review and get feedback over the next few months.”
Equities in UAE are valued at about $110bn, while Qatar’s are worth about $121bn, according to data compiled by Bloomberg.
Qatar’s QE Index has fallen 5.4 percent this year. Stocks from South Korea and Taiwan are included in the $7.89 trillion MSCI Emerging Market Index, which lost 3.3 percent this year through yesterday.
An upgrade of the UAE and Qatar is likely to draw more investors as fund managers buy their shares to mirror MSCI’s indexes.
MSCI cited “stringent foreign ownership limits” such as limited availability of shares to foreign investors as remaining concerns for the countries.
Under existing UAE law, foreign companies must have UAE nationals as their sponsors and are limited to a maximum 49 percent ownership of businesses, except in free zones.
Qatar caps overseas ownership at 25 percent.
So-called frontier markets typically have less-developed economies and financial markets than emerging markets, and have more restrictions on foreign stock ownership.
South Korea and Taiwan weren’t ungraded amid issues including the lack of full currency convertibility and the lack of active offshore currency markets accessibility, MSCI said.