Status upgrade too late for emerging markets party

Just being included in the gang means more of the world's available investment funds will flow through UAE markets thanks to things like tracker funds that are linked to MSCIs various products.

Just about any transaction undertaken on an electronic financial market can be completed in half a second or so.
With that in mind, six years is a phenomenally long time to wait when you are trading stocks.
Six years is how long MSCI has been mulling whether to allow the UAE, and others around the region such as Qatar, to upgrade to the hallowed emerging markets status.
In the wee small hours of yesterday morning the decision was finally made, much to the delight no doubt of the UAE investment community and the stock market operators in Dubai and Abu Dhabi.
The upgrade is indeed a cause for celebration and a great achievement for the country. Every year the exchanges here have worked hard to implement new technologies and procedures to ensure that market operation is up to speed with the best in the world and that investors receive the same services and protections that they would expect in any other sophisticated financial centre.
The rewards are also expected to be handsome. The MSCI Emerging Markets Index includes more than US$7 trillion worth of equities at current prices.
Just being included in the gang means more of the world's available investment funds will flow through UAE markets thanks to things such as tracker funds that are linked to MSCIs various products.
Analysts expect perhaps about $300 million to $400m of new funds would flow through this country as a result of the upgrade, which is scheduled to come into force next year.
But those rewards could have been far greater if the MSCI decision had been made just a little bit sooner.
Most investors around the world are going very cold on emerging markets just now. In fact the prevailing view among the majority of mainstream analysts is that the prolonged emerging markets rally that has been in full effect pretty much since early 2009 is finally over.
This year so far the MSCI Emerging Markets Index has charted a persistently downwards trajectory - in complete contrast to both the Abu Dhabi and Dubai markets, which have performed better than most indexes on Earth.
The MSCI Index closed at 39.38 after the UAE upgrade decision was made, down almost 2 per cent on the day and about five points lower than its level at the start of the year.
That is only a point or so away from the level it was trading at in the beginning of 2007, the year the UAE began its campaign to join.
Last year by contrast, the index enjoyed a stellar performance, rising in value by some 18 per cent.
But these fluctuations in equity prices are just one indication that the emerging markets rally is grinding to a halt.
The bond markets provide much more convincing, and worrying, evidence that emerging markets are staring down the barrel of a troubling new cycle.
The prevailing trend in global markets today, as it has been for the past month or more, is the steep rise in US treasury yields and the increasing strength of the dollar.
This has caused investors to pull back from emerging markets debt as currencies from those countries - such as Brazil, Mexico and Turkey, for example - depreciate against the dollar and their bonds are less attractive than American treasuries.
In short, while the financial crisis was in full swing and US treasuries became less of a safe haven than they are supposed to be, investors jumped aboard the emerging markets bond train to take advantage of high yields.
Now the US Federal Reserve has hinted that it might start reining in its fiscal stimulus policy, which means it thinks the crisis might be drawing to a close, and investors are returning to the familiarity of US treasuries.
A change of tack in China - which it is hard to believe is actually defined as an emerging market given its power, its scale and our dependence upon it - is also a major factor in this big investment strategy shift.
China is largely viewed as moving into a new stage of development away from rapid urbanisation and infrastructure development towards a more mature consumer economy.
For this the country will need fewer resources like oil and steel and so will not be the great driver of the global resource economy that it has been.
In lock step with China's changing gears, the other emerging markets are expected to enjoy slower GDP growth as this cycle shifts, which can be expected to translate into less impressive share price growth.
The MSCI upgrade is indeed a historic milestone for UAE markets, but it remains to be seen how much longer we will have to wait before we enjoy the real fruits of all the hard work we put in to achieve it.
 
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