UAE stocks ready to join MSCI emerging markets index
Posted on 13 April 2011 with 2 comments from readers
Dubai stocks moved to a two-month high yesterday, adding one per cent against a global downtrend in share prices, as the UAE bourses made a key technical change that may herald their inclusion in the revised MSCI emerging market index this June.
Readers of the ArabianMoney newsletter had advanced warning of this impending change in our last edition (click here) but the actual announcement of the move to align settlements with international best practice only came this week.
Foreign ownership
However, the MSCI committee last year refused to include UAE and Qatar as emerging markets on two grounds: settlement and the restrictions on foreign ownership. It remains to be seen whether this half-way solution will be enough. The report will come late in June.
But it is surely anomalous that countries like the UAE and Qatar are still rated as frontier and not even emerging markets. Some would argue for an immediate jump from frontier to developed market status.
Per capita income does, after all, place these nations ahead of most developed countries. They have also made huge advances in their local capital markets. Dubai did not even have a trading floor a little over a decade ago.
Bringing these markets onboard the global financial system makes excellent sense in these difficult times. Money will flow back and forth from the two richest Gulf States with benefits for investors and financial institutions all round.
Global black swans
Inclusion in the MSCI emerging markets index would bring new institutional investors to the table but it is not an instant passport to rising stock markets. A double-dip global recession and lower oil prices would still depress these bourses which track global markets quite closely.
Still there was a tingle in the air on the DFM floor this week with much higher trading volumes and a feeling of being back in the good old days of the 2005 stock market boom. The bourse actually hit a seven-year low only last month, so perhaps from there the only way is up!
2 Comments posted by readers:
Another problem looming is liquidity, GCC markets are rather dry!
Possibly a more sensible route would be for UAE Exchanges to focus on merger, which would create cross-Emirate-border trading, which is distinctly lacking currently. This would, I believe, provide FII’s with more confidence in UAE markets.
Far better for this to happen than NASDAQ to create yet another initiative, this week’s to offer FZ IPO’s, which based on previous moves will end with expenditure and little revenue!
Just heard that a local fund manager is tipping Emaar to rise to 9 or 10 (currently 3.44) in the next 18 months.