Thursday, May 15, 2014
Dubai: Market intermediaries and analysts expect the upgrading of the UAE and Qatar markets to emerging markets will improve foreign institutional fund flows and participation of a more sophisticated group of investor in the market.
Although the impact of the upgrade has largely been already accounted for the valuations of most stocks included in the indexes, the participation of passive investors will be soon reflected in the valuations. Overall the market expects a boost of $1.5 billion (Dh5.5 billion) to $2 billion in market capitalisation across these two markets in the next 12 to 18 months. But over a longer time horizon the valuation impact is expected to be much larger.
“The upgrade is expected to attract up to $15 billion of new inflows over the next five years from international institutional investors, which when combined with what we hope will be subsiding retail investor speculation, should lead the markets further towards maturity,” Khaled Sifri, Chief Executive Officer of Emirates Investment Bank.
Institutional investors who already have exposure to this region believe that the upgrade is a significant milestone in Middle East emerging as a key component in the emerging market investment universe.
“The most significant potential benefits of reclassifications include an increase in portfolio flows with the entry of foreign institutional investors and passive or index-tracking investors. We are encouraged by the longer-term prospects and expected institutionalisation of these markets. We believe the positive liquidity boost following MSCI’s decision coupled with attractive valuations will support the GCC markets over the medium term. The economic outlook — at least in the majority of GCC countries — remains positive,” said Bassel Khatoun, Co-Head MENA Equity Local Asset Management — MENA at Franklin Templeton Investments.
Analysts expect that GCC governments, including Qatar and the UAE, will push ahead and further liberalise access to their markets by raising foreign ownership limits for investors and adopting flexible legislative and regulatory frameworks. “Regulators have already started showing serious signs of commitment to further develop their markets to properly reflect the underlying economies,” said Khatoun.
While the regional governments are already pushing for increased private sector participation and encouraging local family businesses to turn into public shareholding companies listed on the different exchanges the deepening and broadening of capital markets are expected improve the sophistication levels of the markets.
“The MSCI upgrade is likely to bring more institutional investors into the Qatari and UAE markets that inevitably will lead to more interest in sophisticated product offerings. Increased sophistication also implies the need for asset class diversification providing an alternative to conventional asset classes, that have dominated GCC investment in the past, and which also have the ability to manage volatility and produce alpha on a long or short basis. Hedge funds may therefore increasingly be seen to have a role to play as a solution to these developments,” said Jacques Visser, National Partner at Dechert LLP.
By Babu Das Augustine Deputy Business Editor
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