One year on from MSCI's last review of the UAE market, the same obstacles largely remain between the it and an upgrade to an "emerging" market.
Optimism over MSCI December decision on UAE market status
One year on from MSCI's last review of the UAE market, the same obstacles largely remain between the country and a much-desired upgrade to an "emerging" market.
Regulators and officials from the country's three bourses said repeatedly this year that earning the higher classification was a top priority.
But they were not able to adequately address the factors outlined by MSCI in time.
What went wrong?
"Well, the answer was not 'no'," said Jeff Singer, the chief executive of Nasdaq Dubai. "What we got from the MSCI was a yellow light and it depends on how you interpret that. Some see it as a 'stop' and some as a 'go'. "I took it as the markets moving forward. [The markets are] evolving in the right direction."
But progress has been slow.
The Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM) announced earlier this year they had enforced a required settlement system, called delivery versus payment (DvP).
But this did not happen until late spring, which did not give MSCI time to determine whether it was working effectively.
The delay was in part due to "fundamental differences" between the exchanges on what system to use, said Elie Ghanem, the head of market and product development at the ADX.
The country's regulator, the Emirates Securities and Commodities Authority (SCA), also had to approve the new DvP software, which was not completed until late in the first quarter of this year.
Even after it was in place, there were reported complications, with brokers and custodians struggling to adjust even after training days were arranged at ADX and DFM.
"Every time you make a change of this magnitude there has to be a coordinated effort … that's why it took a little longer," Mr Singer said.
Nasdaq Dubai has not yet implemented the DvP software, but Mr Singer said that did not play a part in MSCI's postponement, adding the exchange would be using the system in a matter of days.
Such challenges should be taken as a spur to forge ahead with a consolidation of local markets, officials said.
"If there's anything I'd take as a message from this whole discussion, it's that this should give us the impetus to integrate the markets," said Nasser Saidi, the head of external relations and chief economist at the Dubai International Financial Centre.
A merger of the two biggest exchanges, the DFM and ADX, has been a sore point for many investors and has not been initiated, despite strong support from the markets community.
What has been a bigger issue is the narrow opportunity for foreign investment in the UAE's listed companies, but there has been little movement on this front. Nevertheless, government officials said last week there were no plans to raise the limits.
Just 3.3 per cent of UAE stocks are held by foreign investors, according to a research note from Al Ramz Securities last month. Emirates NBD offers only 5 per cent of its equity to foreign investors, while the UAE's biggest company by market capitalisation, Etisalat, is closed to foreigners.
The waiting game will be back later this year as analysts expect another tumultuous few months of speculation in advance of MSCI's December decision.
"What's for sure is that we're probably going to see more anxiety from the investor community when the next decision comes out," said Philippe Dauba-Pantanacce, the senior economist at Standard Chartered.
Despite the cloud of uncertainty following MSCI's latest move, many investors saw the index firm's choice to review the UAE again in six months as a good sign - of sorts.
In a note to investors, analysts at Citi summed up the feeling of the market: "This is an unusual step for MSCI, and in our view suggests that promotion is highly likely to occur [in December]."