The UAE and Qatar are in line for an upgrade to emerging-market status as early as this month, HSBC says, in a move that could help the two Gulf nations attract more investment.
The countries are classed as frontier markets by MSCI, which allocates classifications according to factors like economic development and bourse trading volumes.
Simon Williams, chief economist for HSBC Middle East and North Africa, told Al Arabiya that the bank was “optimistic” that the two countries would be reclassified as emerging markets.
“They will get upgraded, it’s just a matter of when,” said Williams. “Hopefully it will occur sooner rather than later”.
MSCI’s decision on whether to upgrade the UAE and Qatar will be made in one of the organization’s regular reviews on June 11, according to Bloomberg.
“Hopefully it will happen in this review; but if not it will happen in one of the subsequent reviews,” Williams said. “We’re optimistic.”
HSBC said in a separate report dated May 31 that the upgrade could happen this month. HSBC said the reclassification could see about $370 million flowing into the UAE and more than $430 million into Qatar, Bloomberg reported. The news saw the Dubai index today soar by the most in more than three years, with a more modest increase in Abu Dhabi.
While under review for some time, the UAE and Qatar have failed to make the grade as emerging markets, despite much speculation to the contrary. In Qatar, a 25 percent cap on foreign ownership of most stocks is seen as a major stumbling block to an upgrade.
Some economists told Al Arabiya they are less optimistic that the two Gulf countries will be upgraded by MSCI.
“I will not be surprised if they are not chosen again,” said John Sfakianakis, chief investment strategist of Masic, a Saudi Arabian family investment company that was founded in 1933. “Out of the two, the UAE could potentially be a stronger candidate than Qatar.”
Sfakianakis pointed to the restrictions on the foreign ownership of shares as holding back Qatar’s prospects of an upgrade.
“It’s more of a problem in Qatar, where foreign investors are restricted to owning up to 25 percent in a stock,” he said. “The other issue was market accessibility”.
Sfakianakis said there are “a lot of caveats” about the potential upgrades, and said he didn’t expect the reclassification straight away.
“I’m not yet convinced – but you never know,” he said.
By Ben Flanagan