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What was all the fuss about and what does MSCI stand for?

What a reclassification means for markets.

Let's start from the beginning.

What is MSCI?

The acronym stands for Morgan Stanley Capital International, which compiles influential indexes tracked by thousands of fund managers. MSCI's indexes cover thousands of stocks under various categories and are used as benchmarks to measure the performance of portfolios.

What was all the fuss about?

The UAE and Qatar were under a review for a potential upgrade to "emerging" market status, from "frontier". Such an upgrade could lead to an influx of billions of dollars worth of investment.

Would this money have been invested straight away?

No. Very little happens on the same day country classifications change. Fund managers actually have a year to decide how to allocate funds to the newly classified markets.

What is the difference between frontier and emerging markets?

Emerging markets include some of the most dynamic and fastest- growing economies in the world, such as China, India and Brazil. They are considered more stable and better regulated, and therefore draw more international investment. Frontier markets include countries that are just beginning to open up to investors outside their domestic market, such as Kazakhstan and Vietnam. Regulation tends to be weaker and the markets are subject to sharper swings, keeping a lot of investors at bay.

Didn't another index compiler upgrade the UAE to emerging?

Yes, in September, the FTSE Group categorised the UAE as a "secondary emerging" market under a slightly different criteria than the one used by MSCI. It still classifies Qatar as a frontier market. Analysts say because more assets are tracked to MSCI's indexes, an upgrade by MSCI carries more weight.

Why did the UAE and Qatar not get the upgrade this time round?

Limits on foreign ownership is one factor, as the UAE permits outsiders to own only 49 per cent of a company's shares, except for in its free zones, and Qatar has a limit of 25 per cent. Also, MSCI required the bourses to implement a new settlement procedure for trades. That has mostly been done but MSCI said it was still watching to make sure the new system was working smoothly.

When is the next review planned?

MSCI usually reviews its classifications only once each year but said in this instance it would evaluate the UAE and Qatar again in December.

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