x Abu Dhabi, UAESaturday 22 July 2017

UAE markets expected again to miss upgrade by MSCI

Financial markets in the UAE will miss out on an upgrade to emerging status again this year, as investors wait for deeper changes to the indexes' rules, predicts the manager of the Franklin Templeton frontier market fund.

The UAE has three stock exchanges, the Nasdaq Dubai, the Dubai Financial Market General Index and the Abu Dhabi Securities Exchange General Index, above. Jaime Puebla / The National
The UAE has three stock exchanges, the Nasdaq Dubai, the Dubai Financial Market General Index and the Abu Dhabi Securities Exchange General Index, above. Jaime Puebla / The National

UAE financial markets will miss out on an upgrade to emerging status again this year, as investors wait for deeper changes to the indexes' rules, predicts Mark Mobius, the manager of the Franklin Templeton frontier market fund.

MSCI, a provider of investment decision support tools, is due to review the current "frontier market" status of the UAE and Qatar in June. It will be the fourth time the two countries attempt reclassification, after both failed to meet "emerging market" criteria in December.

Mr Mobius, who has five UAE and Qatari companies among his top 10 holdings in the world's largest frontier-market fund, said that regional stability kept niche investors interested in local markets but that the broader investment available to MSCI-rated emerging countries would disappoint again this year.

"The UAE will not make emerging-market status this year. Ownership restrictions and the free-float rules must change," Mr Mobius said. "If restrictions around foreign ownership could be eliminated, that would really encourage more investment. Both Abu Dhabi and Dubai need more free zones."

The influx of foreign money that would follow an upgrade by MSCI would increase liquidity in UAE markets, making them more attractive to local companies that decide to list their shares on a stock exchange.

The healthcare company NMC announced last week that it would bypass local markets and take its US$250 million (Dh918.2m) initial public offering to the wide range of investors on the highly liquid London Stock Exchange.

Mr Mobius said local stock exchanges should be doing more to encourage companies with plans to float to stay in the UAE.

"The market can take more initial public offerings. But a lot will depend on the attitude at the local level in encouraging local listings with incentives like much better publicity around the company through promotions and roadshows," he said. "This needs to come from the stock exchanges."

The UAE has three stock exchanges, the Nasdaq Dubai, the Dubai Financial Market General Index and the Abu Dhabi Securities Exchange General Index. Mr Mobius said the bourses needed to merge to benefit from improved resources and efficiency.

lmiller@thenational.ae