Based on recent investor reaction to the UAE's upgrade to a secondary emerging market, opportunistic types might want to start scouting stocks in Turkey and Malaysia. The two countries were classified as "advanced emerging" markets by FTSE yesterday, an upgrade from their previous status as "secondary emerging" markets. The Czech Republic also received the higher classification. The announcement means stocks from those markets will receive a higher profile within the FTSE Global Equity Index Series, a similar promotion to the one UAE stocks enjoyed this week.
A basket of 21 local shares was included in the FTSE emerging markets index from Monday after the UAE's status was upgraded from "frontier" to "secondary emerging". Investors responded enthusiastically and brokers said the classification marked a new era for local bourses. The Dubai Financial Market and the Abu Dhabi Securities Exchange finished the week with solid gains. Inclusion in the index means fund managers controlling tens of billions of dollars pay closer attention to the shares when making investment decisions.
The UAE's upgrade was first announced last year but only went into effect this month. Likewise, Turkey and Malaysia will not officially change classifications until about this time next year. Elsewhere in the Gulf, Kuwait and Qatar remained classified as "frontier" markets, although Kuwait was included on a watch list of countries to be considered for promotion next year. FTSE classifies equity markets as "developed", "advanced emerging", "secondary emerging" or "frontier" based on the quality and security of the trading environment they provide for international investors. Turkey and Malaysia were upgraded "following significant changes to their regulations and investment procedures," said Mark Makepeace, the chairman of the FTSE Group.
It is less common for countries to be downgraded but Greece now faces that possibility after being placed on the watch list to be possibly classified as an "advanced emerging", market rather than a "developed" one. The UAE will not be considered by FTSE for an upgrade to advanced emerging market until at least 2012. Another index provider, MSCI Barra, still classifies the UAE as a "frontier" market.