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Qatar, UAE shares jump – but full benefits of MSCI move expected in 2014

Published: Updated:

Shares listed in the UAE and Qatar rose yesterday after MSCI granted the countries coveted ‘emerging market’ status – but commentators said it will be a year until the full benefits of the decision are felt.

The Dubai Financial Market index leapt by 1.5 percent, while shares in Abu Dhabi and Qatar notched up 2.6 and 1.7 percent respectively.

Yet the forecast $800 million inflow into the three stock markets is not likely to start until late May 2014, when MSCI will officially upgrade the countries from their current frontier market status.

The transition of the MSCI UAE and MSCI Qatar indices from frontier to emerging markets will coincide with the May 2014 semi-annual index review, an MSCI statement announced earlier on Wednesday.

Fadi al-Said, fund manager at ING Investment Management in Dubai, and Abdulla al-Hosani, general manager at Emirates NBD Securities, said they do not expect an overnight change in levels of liquidity.

“I don’t really see a major impact of the news. Whatever happens will happen later in the listing process,” al-Hosani told Al Arabiya.

Jahangir Aka, managing director at SEI Middle East, said that the MSCI decision “raises the level of awareness and the recognition” for the UAE markets.

“This is a sign of maturity of the UAE economy and the markets and this is yet another stamp of the UAE’s success,” Aka told Al Arabiya.

In Qatar, the story has a slightly longer-term outlook, Aka said. The market there is probably not moving as quickly as the fundamentals of the domestic economy which are very much driven by government-sector investments.

In the last six-to-nine months however, leading investors have already zeroed in on this region and they have started increasing their allocation here, Aka pointed out.

Aka said these are longer term investments of a strategic nature and so can't be deemed ‘hot money’, a term used to describe short-term investments from abroad.

“The type of investors that we are seeing and hearing about don’t tend be here for a week and take off the next”, he said. “I think it’s easy and quick for people to accuse foreign money of being hot money. However, it’s not fair as it’s ‘active money’ and there is a difference between the two,” he explained.

The MSCI decision coupled with these strategic investments may influence other organizations which have yet to take a call on allocating investments to this region, Aka said.

The UAE and Qatar first sought inclusion in the Emerging Markets Index in 2008 and were declined five times since the first review in 2009, according to media reports.

A HSBC note to clients last month forecast that an upgrade to emerging market status could bring more than $430 million flowing into Qatar’s stock market and around $370 million into the UAE’s.

Yet Shailesh Dash, chief executive at Dubai-based Al Masah Capital said there are different numbers floating around in the market - and said it is difficult to estimate what the actual inflows will be next year.

Regardless of the inflows, Fadi al-Said believes that in the short-to-medium term the MSCI decision has changed the market dynamics, as it has opened a window of opportunity for seasonal or momentum-driven players who could come to these markets for benchmark-exposure.

“This [MSCI decision] might change the game now,” he commented.

A previous problem with foreign investors was that they were not patient with the region, al-Said noted. However, these markets are now stable, he said, pointing out the reasons why investors may be more patient. Valuations are still relatively cheap, dividend yields are higher - especially in the banking sector - and macro-economic outlook is good, he noted.

The DFM benchmark Index has risen 53.9 percent while the Abu Dhabi index has added 46.6 percent since the beginning of this year, according to Bloomberg data. The main measure of Doha has added close to 20.1 per cent for the same period.

Al-Said, Dash and Walid Hayeck, the head of asset management at The National Investor in Abu Dhabi opined that the MSCI decision, coupled with good fundamentals will continue to support the indices.

Abdulla al-Hosani, however, believes that the indices have reached a ceiling this year and there is a possibility of slight profit-taking, following which the market could witness some sideways movements.

The implications of MSCI’s decision to include the UAE and Qatar into the emerging markets category reach far beyond the liquidity and investment inflows. This can potentially open up the dormant IPO market. Apart from fresh listings from the companies looking to tap equities market to raise capital, the three exchanges could also attract regional cross-listings by the firms seeking emerging market exposure, Hayeck added.

Dash, however, believed that it is less likely that the markets will attract fresh listings this year. The potential issuers would wait for the markets to go through transition first, he added.