MSCI delay cans UAE bourse rally for six months, Qatari bid looks dead
Posted on 22 June 2011 with 2 comments from readers
The decision on a potential upgrading of the Abu Dhabi, Dubai and Doha bourses to emerging market status in the MSCI index has been delayed for six months to allow for the assessment of a new UAE settlement system, hastily introduced just in advance of the deadline.
But Qatar’s bid appears dead because the economy is too tightly owned by the state, with not more than 25 per cent of listed companies’ stock available for foreign ownership, compared with an upper limit of 49 per cent in the UAE.
Disappointment
This decision will be a disappointment for local investors who had hoped the MSCI ruling would compel index tracking funds to invest in their markets, reckoned to be worth $3-4 billion for the UAE alone.
And even if the ruling goes in favor of the UAE at the end of the year, it is unlikely to apply before November 2012. The impact is therefore pretty much the same as if the bid had failed for another year.
For Qatar, however, the blow is bigger and probably means that bold talk recently about a possible IPO for Qatar Airways can be forgotten, unless the state intends to effectively sell the shares back to itself, and such internal transfers are often a feature of refinancing in the Gulf these days.
But this announcement is a setback to the development of both Qatar and the UAE as destinations for investment by global fund managers, although the UAE will almost certainly get there eventually.
Qatar will need to think whether it wants to share its wealth more widely to profit from the greater efficiency of markets in allocating capital, or is just too small and rich to bother.
Regional financial centre
On the other hand, global observers looking for the next regional financial capital after the fall of Bahrain can note that the UAE has just increased the distance from its nearest rival for that crown.
That said Gulf stock markets were facing a rough ride along with global financial markets over the next few months in any case, and hopes that the MSCI index inclusion would somehow offset this have always been exaggerated.
Local stock market investors can be expected to sell today and start a very long holiday.
2 Comments posted by readers:
A sensible decision…If you act like a “frontier market”, have governance like a “frontier market”, that’s exactly what you should be…..no amount of big shiny offices change that.
Sensible outlook and a welcome change to the ra ra flag waving from many commentators who thought it a done deal.
If only this would engender a sense of urgency from ESCA and the respective Governing bodies about much needed reform and even a merger or two in order to obtain critical mass. Don’t hold your breath on that one though.
There’s always one surprise around the corner, however. These are still retail markets and the remotest hint of good news will rally the faithful-even the end of Ramadan?