Another upgrade boost for UAE market

Traders work at the Dubai Exchange Market in Dubai. - AP

The UAE and Qatar gained an assertive boost to their long quest for a critical market upgrade with international equity index compiler S&P Dow Jones Indices announcing on Thursday its decision to promote both countries to emerging markets status from frontier market category with effect from September 2014.

S&P Dow Jones Indices move is line with a similar decision announced a few months ago by another stock market index provider, MSCI, to rope in both countries to emerging market category, an elevation that pundits believe could trigger foreign investment inflow of between $1.5 billion and $3 billion to the region over the next few years.

As good news continued to pour in, IP Global, a leading property investment company, said Dubai and Edinburgh have debuted in its Q3 investment hot list, alongside US destinations including Chicago, New York, Boston and Seattle, and the Australian cities of Melbourne, Sydney and Brisbane.

Paul Preston, director and head of IP Global Middle East, said after the release of its latest Property Barometer for Q3 2013: “We are pleased to see Dubai benefiting from rising economic confidence across the Mena region. Prices have risen an impressive 11.9 per cent in 2013 to date, with potential for more growth in a market that remains 30 per cent below the peak levels of 2008. The ever increasing inflow of expat workers in the city from all over the world is a key factor in driving consistent rental rises.”

S&P Dow Jones Indices cited the UAE’s current foreign ownership
limit of 49 per cent as satisfactory and noted that there is an expectation that it would be relaxed in coming years.

The index compiler noted Qatar’s efforts to raise foreign ownership limits for stocks, though the limits were still below the levels of most emerging markets, as well as reforms to settlement systems and trading facilities.

“Egypt and Morocco will remain emerging markets, while Bahrain, Kuwait and Oman will keep their status as frontier markets and Saudi Arabia will stay classified as a “standalone market”, S&P Dow Jones Indices said in a statement.

S&P Dow Jones indexes are used as investment benchmarks by some fund managers. In June this year, MSCI said it would upgrade Qatar and the UAE to emerging market status from May 2014.

According to the New York-based MSCI, whose market assessments are followed by investors with approximately $7 trillion worth of assets, the reclassifications of the UAE and Qatari markets will coincide with its May 2014 semiannual index review, with the Morocco and Greece downgrades taking place in November this year.

HSBC said in a recent report that the upgrade for both Gulf markets would come on the back of improved delivery-versus-payment systems and a new buyer-cash-compensation process.

The GCC equity markets had a good start in 2013, largely due to an uptick in earnings across key cyclical sectors, such as banking and real estate.

Analysts said expectations of double-digit growth in 2013 net income for Gulf companies were driving bullish sentiment. With their current account and state budget surpluses and currency pegs to the US dollar, Gulf economies are generally less vulnerable than most to capital outflows caused by rising US yields.

Investment managers believe that it remains a priority that both the UAE and Qatar continue to attract institutional foreign investment to provide enhanced stability for region. They said the UAE could also see a potential increase in international investment should plans for the new investment law, which contains legislation allowing foreigners full ownership of companies in industries that could potentially benefit the country’s economy, be passed before the year-end.