Dubai bourse highest since February on MSCI index rumours

Dubai shares jumped by 2.2 per cent today on a much higher than normal volume of 194 million shares as rumours circulated that the bourse might have clinched inclusion in the MSCI emerging markets index which is expected to be announced this time next week.

It could be that the MSCI impact on Dubai share prices is a question of being better to travel than to arrive, and that once the announcement is made shares will actually fall back. The same thing happened when DP World was finally listed on the London Stock Exchange and promptly declined in value.

DvP settlement

You also have to be worried about the  global stock market sell-off that will drag local markets down too (click here). However, Dubai Financial Market has managed to implement its new settlement system in time for the MSCI inspectors and showed it off to some visitors from Oman this week. The only objection that might remain is over the percentage of shares available for trading by foreigners but this is not thought likely to be a barrier to inclusion.

On the other hand, fund managers like Mark Mobius have warned that MSCI index membership does not automatically mean that his fund would start buying UAE stocks immediately. But clearly emerging market fund managers would have to include top UAE stocks in their MSCI portfolios to track the index in the future.

Psychological barrier

It is also an important psychological leap to take the UAE out of the frontier market category and into the emerging markets index. For a country with one of the highest per capita GDPs in the world and huge hydrocarbon reserves as well as the world’s largest sovereign wealth fund, it does seem ridiculous that its stock markets are marked alongside bankrupt African nations.

Through its sovereign wealth funds Abu Dhabi is probably the biggest sovereign investor in global equities in the world, and yet its own stock market is not presently even considered an emerging market, let alone part of the leading gobal economies.

It is about time that the MSCI addressed this anomaly and ArabianMoney can only hope that the rumours are true. Whether this proves to be a case of buy on the rumour and sell on the announcement is something else.

What foreign investors would then like to see is a unified UAE bourse, encompassing stocks from Abu Dhabi, Dubai and the other emirates, and an attractively priced IPO or two. Then the UAE bourse would rally strongly as it ought to be doing with oil prices so high.