UAE bourses climb on 'emerging markets' status upgrade hopes

The UAE's markets hit new highs ahead of tomorrow's key decision about whether they will be awarded "emerging markets" status.

Investors follow trading at the Dubai Financial Market. Marwan Naamani / AFP

UAE markets yesterday climbed to new highs ahead of a key decision tomorrow about whether the country's markets will be awarded "emerging markets" status by MSCI.

The index compiler will also decide whether to raise Qatar to emerging market status on the same day.

If raised to emerging status, fund managers would have until next year to allocate funds to the countries' markets.

Six out of the seven Gulf markets are considered "frontier" at present, placing them in the same category as the stock markets of Bangladesh and Kazakhstan. Saudi Arabia is not categorised by MSCI.

The Abu Dhabi Securities Exchange General Index climbed to its highest in more than seven months yesterday as it advanced 0.5 per cent, while the Dubai Financial Market General Index climbed as much as 0.7 per cent at the opening ahead of a reassessment on a possible upgrade tomorrow.

Qatar's index added 0.2 per cent to 8,334.67 points.

Unlike emerging markets, which are considered more regulated, stable and appealing to international investors, frontier markets are perceived as risky and volatile.

Fund managers and brokers poured into local markets ahead of MSCI's announcement.

"It looks more likely that [the UAE] will be included than any other time it has been talked about," said Mohammed Ali Yasin, the chief investment officer at CAPM Investment. "It is another tick box on the things we need to have, but we still need to attract liquidity from local investors for volumes to return," Mr Yasin said.

The Dubai Financial Market company traded at its highest point in more than a month on optimism of an upgrade but pared down some of these gains to end yesterday 0.1 per cent lower at 1,598.79 points.

Speculation surrounding the decision has been gaining momentum for months, often dictating the movement of markets. An upgrade could direct billions of dollars of investment into the country.

It has prompted the UAE and Qatari markets to address key issues raised by MSCI as crucial components toward achieving an upgrade.

Abu Dhabi and Dubai's markets said on May 29 market participants were ready to use a key trading system, the so-called delivery-versus-payment, meeting one criteria for an upgrade.

But limits on foreign ownership and the relatively small size of free-floats, or the number of shares companies sell to the public, have raised concern among some market players on whether the UAE and Qatar will achieve an upgrade.

Only 3.3 per cent of UAE stocks are held by foreign investors, a research note from Al Ramz Securities has shown, with many bellwether stocks including Emirates NBD bank and Etisalat offering little or no investment from international investors.

Qatar's exchange has also said it would not increase its foreign ownership limits to 49 per cent from the present 25 per cent.