Stock markets in the UAE and Qatar gained on Wednesday after the MSCI upgraded the two countries to emerging market status. This is likely to attract increased attention from foreign investors.
The Abu Dhabi benchmark rose the most since 2009 after its index jumped 2.65 per cent to close at 3,661.09. The Dubai Financial Market (DFM) General Index ended 1.59 per cent higher at 2,395.65.
The Qatari index witnessed the biggest jump in almost five years after it advanced 1.75 per cent to 9,517.95.
“The upgrade will have a positive impact on both countries as more international investors will look to invest in these markets,” said David Verghese, senior fund manager at Emirates NBD Asset Management. “This is a significant turning point for these markets as the upgrade signals that these markets have satisfied the MSCI criteria, which are quite stringent.”
However, R. Seetharaman, Group CEO, Doha Bank, said that restrictions on foreign ownership remain a concern for international investors in Qatar which was highlighted by the MSCI last year. However, some Qatari companies such as Qatar Industries have increased their free float and hence can evidence interest from foreign investors.
Boost to sentiment
“The measures taken by Qatar and the UAE to improve their market accessibility have resulted in their upgrades to emerging market status,” said Seetharaman. “It is definitely a boost to market sentiment. The foreign investment is expected to rise and improve liquidity in these markets.”
Heavyweight Emaar Properties, which had the day’s highest turnover of Dh256.53 million, advanced 2.84 per cent to Dh5.80.
Others to gain included Dubai Financial Markets, the region’s only bourse that’s listed, which rose 2.59 per cent; Dubai Investments, up 2.61 per cent, and Dubai Islamic Bank, which added 1.17 per cent.
In Abu Dhabi, bank and real estate stocks, among the highest traded stocks, were up significantly. Aldar Properties and Sorouh Properties jumped 7.41 per cent and 3.76 per cent respectively.
Among the lenders, First Gulf Bank gained 5.59 per cent to end at Dh16.05 and Abu Dhabi Commercial Bank added 3.19 per cent to close at Dh5.18.
In Qatar, Qatar National Bank jumped 4 per cent to 155.4 riyals, the highest since 2005.
As a result of the upgrade, Saleem Khokhar, head of equities at National Bank of Abu Dhabi’s asset management group, believes that the stocks likely to benefit in the UAE in the longer term include Emaar Properties, DP World, National Bank of Abu Dhabi, Abu Dhabi Commercial Bank, First Gulf Bank and DFM.
In Qatar, he said, Qatar National Bank, Industries Qatar and Qatar Telecom are likely to be beneficiaries.
Scope for reforms
However, observers still see room for further reforms to boost global interest. And in this regard, size obviously matters. A market with a weight of less than 0.5 per cent can easily be ignored or neglected by most of the active managers, said Shakeel Sarwar, head of asset management at Security and Investment Company, Bahrain.
“The liquidity and free float of a market also need to be reasonable to give comfort to an international institutional investor,” he said. “And last but not least, regulatory and legal framework, corporate governance standards and the growth or return potential of a market play a critical role in attracting international institutional liquidity.”
And investors would like to see more companies come to the public markets, especially in areas of the economy that are currently not available to investors. “Some of the large family conglomerates, airlines, utilities and consumer stocks would be excellent candidates for an IPO,” said Verghese. “Institutional investors will be attracted to the local market if they can invest in several different themes and sectors.”