U.A.E., Qatar Potential Candidates for MSCI Upgrade, HSBC Says

The United Arab Emirates and Qatar could be upgraded to emerging-market status at MSCI Inc. this month after both nations improved market accessibility, HSBC Holdings Plc said in a report.

Morocco could be reclassified to frontier market from emerging market because of “diminished liquidity,” HSBC said. The U.A.E. and Qatar have improved their delivery-versus-payment systems and now include the buyer-cash-compensation procedure, where the buying investor is paid in cash if a security is unavailable for delivery on settlement day, the report said.

“An upgrade will potentially result in access to a larger pool of investments,” HSBC analysts Vijay Sumon and Joaquim de Lima wrote in a research report dated May 31. The move could see more than $430 million flowing into Qatar and about $370 million into the U.A.E., they said.

Qatar and the United Arab Emirates, which has bourses in Dubai and Abu Dhabi, are for a fifth year under consideration for reclassification from frontier-market status. MSCI, whose gauges are tracked by investors managing about $7 trillion, said last year that foreign ownership limits in Qatar and operational frameworks in the U.A.E. needed revising.

Last month, T. Rowe Price Group Inc. said Dubai and Qatar deserved the MSCI’s upgrade to emerging. “Both Dubai and Qatar are in a better position and meet more of the criteria than other countries that have been upgraded before,” Oliver Bell, London-based money manager at T. Rowe’s Africa & Middle East Fund, told Bloomberg on May 22.

Ownership Caps

Foreign ownership limits “are not seen as an issue in the U.A.E.” as most stocks have caps at 49 percent, HSBC said. Foreign ownership limits in Qatar are improved, still “foreign institutional investor feedback may indicate that they are still too low.”

Most companies in Qatar cap overseas holdings at 25 percent. Industries Qatar, the petrochemicals company with the second-heaviest weighting on Qatar’s bourse, raised its foreign ownership limit in September to 12.25 percent from 7.5 percent.

MSCI groups markets according to economic development, trading volumes and market accessibility. The decision on the U.A.E. and Qatar will be made as part of its annual market classification review on June 11, it said in a statement last month. MSCI categorizes seven bourses in the Gulf Cooperation Council as frontier markets.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE