The upgrade in the UAE and Qatar markets to emerging status has some analysts predicting that they will attract up to US$500m of global investments annually. Nasser Saidi writes
MSCI's decision to reclassify the UAE and Qatar markets to emerging status from frontier status has been three years in the offing.
Formally, the reclassification will coincide with MSCI's May 2014 semi-annual index review. The latter implies that funds tracking the MSCI benchmarks will start to invest only after the reclassification takes effect next May. Both Qatar and the UAE will have a 0.45 per cent weight each in the MSCI Emerging Market Index.
The most significant potential benefits of reclassification include an increase in portfolio flows with the entry of foreign institutional investors and passive or index-tracking investors. Institutional investors are restricted to investing in developed and emerging markets.
The market reclassification means that a new class of investors can enter the Qatar and UAE markets. With the upgrade some analysts estimate that the UAE and Qatar markets stand to attract about 1 per cent or up to US$500 million, of total global investments in the emerging markets space annually.
Market reclassification acts as a signal to investors that economic and financial policymakers are committed to maintaining the technical conditions to maintain their new status as an emerging market, including the sufficient size of listed companies and liquidity, orderly market conditions and markets accessibility, which include openness to foreign ownership, ease of capital inflows and outflows, an efficient operational framework and the stability of the institutional framework governing the markets.
Greece has recently lost its developed market status and Egypt is likely to revert to frontier status.
The Qatari and UAE markets have rallied this year, largely boosted by hopes of an MSCI upgrade and the entry of new investors. The Dubai Financial Market is among the top global performers this year, rising 45.5 per cent to date, while Abu Dhabi's exchange has added 38 per cent and Qatar is up 10.6 per cent.While the announcement is likely to provide a near-term boost, one needs to be cautious of the resulting euphoria and market hype.
Following the financial crisis and subsequent sudden stop in capital flows, in the past two years there has been a reversal with foreign investment into emerging market economies (EMEs). While this is largely because of stronger macroeconomic fundamentals in the EMEs, portfolio flows where boosted by a massive injection of liquidity through quantitative easing by the United States and European Union central banks (and the Abenomic Bank of Japan recently).
This has resulted in record low interest rates and the search for higher returns in emerging markets. However, caveat emptor is in order.
Reclassification is not a panacea for market ills or underperformance. In a research report we examined the effect of reclassifications on markets. The empirical results based on 13 market reclassifications since 1980 suggest that the date of announcement of a market upgrade does have a positive effect on market returns, but the evidence also suggests a negative effect on the market on the actual event of reclassification, with prices falling.
While this may seem paradoxical, such a result is consistent with the initial announcement of an announced reclassification leading to an "overshooting" of prices. This involves investors speculatively bidding up securities prices and returns before the actual reclassification event in the expectation that foreign investors will be entering the market, resulting in prices falling following the actual reclassification event.
Exuberance and market hype accompanying market reclassification can lead to asset price bubbles.
Typically, reclassification (both upgrades and downgrades) have followed or been accompanied by economic and financial policy reforms, including improvements in market infrastructure.
Both Qatar and the UAE have already undertaken technical market infrastructure reforms to upgrade into emerging market status: the former by raising the limits on foreign ownership of companies and the latter by improving the securities settlement systems. But much remains on the reform agenda.
Governments in the GCC, including reclassified Qatar and the UAE, have to liberalise access to their markets by removing barriers to ownership by foreign investors. You cannot claim to be global hubs while imposing barriers to entry and access to markets.
Listed companies must improve their corporate governance in accordance with international standards, focus on disclosure and transparency and substantially improve management and financial reporting in accordance with International Financial Reporting Standards, including timely reporting of their results. Regulators need to ensure compliance and upgrade requirements in accordance with international developments, notably on environment, corporate social responsibility and corporate governance standards.
Reclassifications are best viewed as signalling a confirmation and recognition of policy reforms and changes in market conditions. Hence an identification problem may arise whereby improved market conditions are attributed to market reclassification decisions, whereas they are because of prior policy actions and reforms that lead to a reclassification.
The prize for the UAE and Qatar is to become regional if not international capital markets, with the strategic goal of possessing the capacity of managing and controlling their own wealth and being able to allocate capital internationally from their home base.
All countries are striving to attract capital and investment. Competition is increasingly global. The dictum is: "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that."
Nasser Saidi is a former chief economist of Dubai International Financial Centre and the founder of Nasser Saidi & Associates
The BaaS ecosystem
The BaaS value chain consists of four key players:
Consumers: End-users of the financial product delivered
Distributors: Also known as embedders, these are the firms that embed baking services directly into their existing customer journeys
Enablers: Usually Big Tech or FinTech companies that help embed financial services into third-party platforms
Providers: Financial institutions holding a banking licence and offering regulated products
How to watch Ireland v Pakistan in UAE
When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.
TWISTERS
Director:+Lee+Isaac+Chung
Starring:+Glen+Powell,+Daisy+Edgar-Jones,+Anthony+Ramos
Rating:+2.5/5
Omar Yabroudi's factfile
Born: October 20, 1989, Sharjah
Education: Bachelor of Science and Football, Liverpool John Moores University
2010: Accrington Stanley FC, internship
2010-2012: Crystal Palace, performance analyst with U-18 academy
2012-2015: Barnet FC, first-team performance analyst/head of recruitment
2015-2017: Nottingham Forest, head of recruitment
2018-present: Crystal Palace, player recruitment manager
New Zealand 15 British & Irish Lions 15
New Zealand 15
Tries: Laumape, J Barrett
Conversions: B Barrett
Penalties: B Barrett
British & Irish Lions 15
Penalties: Farrell (4), Daly
J Street Polling Results
97% of Jewish-Americans are concerned about the rise in anti-Semitism
76% of US Jewish voters believe Donald Trump and his allies in the Republican Party are responsible for a rise in anti-Semitism
74% of American Jews agreed that “Trump and the Maga movement are a threat to Jews in America"
Brief scores:
Toss: Kerala Knights, opted to fielf
Pakhtoons 109-5 (10 ov)
Fletcher 32; Lamichhane 3-17
Kerala Knights 110-2 (7.5 ov)
Morgan 46 not out, Stirling 40
THE BIO: Martin Van Almsick
Hometown: Cologne, Germany
Family: Wife Hanan Ahmed and their three children, Marrah (23), Tibijan (19), Amon (13)
Favourite dessert: Umm Ali with dark camel milk chocolate flakes
Favourite hobby: Football
Breakfast routine: a tall glass of camel milk
Company Profile
Company name: Cargoz
Date started: January 2022
Founders: Premlal Pullisserry and Lijo Antony
Based: Dubai
Number of staff: 30
Investment stage: Seed
COMPANY PROFILE
Company name: Almouneer
Started: 2017
Founders: Dr Noha Khater and Rania Kadry
Based: Egypt
Number of staff: 120
Investment: Bootstrapped, with support from Insead and Egyptian government, seed round of
$3.6 million led by Global Ventures
Scorebox
Dubai Sports City Eagles 7 Bahrain 88
Eagles
Try: Penalty
Bahrain
Tries: Gibson 2, Morete 2, Bishop 2, Bell 2, Behan, Fameitau, Sanson, Roberts, Bennett, Radley
Cons: Radley 4, Whittingham 5
COMPANY PROFILE
Company: Eco Way
Started: December 2023
Founder: Ivan Kroshnyi
Based: Dubai, UAE
Industry: Electric vehicles
Investors: Bootstrapped with undisclosed funding. Looking to raise funds from outside
COMPANY PROFILE
Name: Yango Deli Tech
Based: UAE
Launch year: 2022
Sector: Retail SaaS
Funding: Self funded
Building boom turning to bust as Turkey's economy slows
Deep in a provincial region of northwestern Turkey, it looks like a mirage - hundreds of luxury houses built in neat rows, their pointed towers somewhere between French chateau and Disney castle.
Meant to provide luxurious accommodations for foreign buyers, the houses are however standing empty in what is anything but a fairytale for their investors.
The ambitious development has been hit by regional turmoil as well as the slump in the Turkish construction industry - a key sector - as the country's economy heads towards what could be a hard landing in an intensifying downturn.
After a long period of solid growth, Turkey's economy contracted 1.1 per cent in the third quarter, and many economists expect it will enter into recession this year.
The country has been hit by high inflation and a currency crisis in August. The lira lost 28 per cent of its value against the dollar in 2018 and markets are still unconvinced by the readiness of the government under President Recep Tayyip Erdogan to tackle underlying economic issues.
The villas close to the town centre of Mudurnu in the Bolu region are intended to resemble European architecture and are part of the Sarot Group's Burj Al Babas project.
But the development of 732 villas and a shopping centre - which began in 2014 - is now in limbo as Sarot Group has sought bankruptcy protection.
It is one of hundreds of Turkish companies that have done so as they seek cover from creditors and to restructure their debts.
ABU DHABI CARD
5pm: Wathba Stallions Cup – Handicap (PA) Dh70,000 (Turf) 2,200m
5.30pm: Rub Al Khali – Maiden (PA) Dh80,000 (T) 1,400m
6pm: Al Marmoom Desert – Maiden (PA) Dh80,000 (T) 1,600m
6.30pm: Liwa Oasis – Handicap (PA) Dh80,000 (T) 1,400m
7pm: Al Khatim Desert – Handicap (PA) Dh80,000 (T) 1,600m
7.30pm: Al Quadra Desert – Handicap (TB) Dh80,000 (T) 1,600m
ROUTE TO TITLE
Round 1: Beat Leolia Jeanjean 6-1, 6-2
Round 2: Beat Naomi Osaka 7-6, 1-6, 7-5
Round 3: Beat Marie Bouzkova 6-4, 6-2
Round 4: Beat Anastasia Potapova 6-0, 6-0
Quarter-final: Beat Marketa Vondrousova 6-0, 6-2
Semi-final: Beat Coco Gauff 6-2, 6-4
Final: Beat Jasmine Paolini 6-2, 6-2
PREMIER LEAGUE RESULTS
Bournemouth 1 Manchester City 2
Watford 0 Brighton and Hove Albion 0
Newcastle United 3 West Ham United 0
Huddersfield Town 0 Southampton 0
Crystal Palace 0 Swansea City 2
Manchester United 2 Leicester City 0
West Bromwich Albion 1 Stoke City 1
Chelsea 2 Everton 0
Tottenham Hotspur 1 Burnley 1
Liverpool 4 Arsenal 0
Scores in brief:
Boost Defenders 205-5 in 20 overs
(Colin Ingram 84 not out, Cameron Delport 36, William Somerville 2-28)
bt Auckland Aces 170 for 5 in 20 overs
(Rob O’Donnell 67 not out, Kyle Abbott 3-21).
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Company name: Namara
Started: June 2022
Founder: Mohammed Alnamara
Based: Dubai
Sector: Microfinance
Current number of staff: 16
Investment stage: Series A
Investors: Family offices
The specs: 2018 Maserati Ghibli
Price, base / as tested: Dh269,000 / Dh369,000
Engine: 3.0-litre twin-turbocharged V6
Transmission: Eight-speed automatic
Power: 355hp @ 5,500rpm
Torque: 500Nm @ 4,500rpm
Fuel economy, combined: 8.9L / 100km