T. Rowe Says Dubai, Qatar Deserve MSCI Upgrade to Emerging

Dubai and Qatar deserve to be upgraded to emerging-market status at MSCI Inc. next month, T. Rowe Price Group Inc. said, after the emirates failed to satisfy the index provider’s requirements for four years.

“I see no reason why they shouldn’t be upgraded and don’t understand why they haven’t been previously,” Oliver Bell, London-based money manager at T. Rowe Price’s Africa & Middle East Fund, said by e-mail yesterday. “Both Dubai and Qatar are in a better position and meet more of the criteria than other countries that have been upgraded before.”

Qatar and the United Arab Emirates, which has bourses in Dubai and Abu Dhabi, are under consideration for a possible reclassification from their frontier-market rankings for the fifth year. 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.

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. The shares have surged 29 percent since the end of that month.

Robert Ansari, Dubai-based executive director at MSCI, was not immediately available for comment when contacted by Bloomberg News yesterday.

Higher Probability

New York-based 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 earlier this month. MSCI categorizes seven bourses in the Gulf Cooperation Council as frontier markets.

“The probability of an upgrade for the U.A.E. is higher today than it has been in the past,” Gus Chehayeb, director of Middle East and North Africa research at investment bank Exotix Ltd., said today. Trading volumes have improved “dramatically” and institutions have had time to test the so-called delivery-versus-payment system, or DVP, Chehayeb said.

Trading volume on Dubai’s gauge has advanced 35 percent in 2013 from a year earlier to a daily average of 318 million shares, according to data compiled by Bloomberg.

An upgrade of the U.A.E.’s $150 billion stock markets could draw more investors because some fund managers buy their shares to mirror MSCI’s indexes. The Persian Gulf nation in 2011 started DVP, a securities industry procedure in which payment for a security must be made upon delivery, as it sought to secure an upgrade.

The DFM General Index has surged 43 percent in 2013, making it the best-performing equity gauge in the Middle East, as a tourism and real estate recovery helped boost corporate earnings. Abu Dhabi’s ADX General Index has advanced 33 percent in the period.

The gains compare with a decline of 0.2 percent for the MSCI Emerging Markets Index, and an increase of 8.7 percent for Qatar’s QE Index. Companies in Dubai’s DFM gauge are valued at an average 0.9 times net assets, or book value, while multiples on the MSCI Emerging Markets Index and Qatar’s gauge are 1.6 times, data compiled by Bloomberg show.

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