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MSCI upgrade to bring in $1.5b

dfm_view|By TAP Staff| Analysts have estimated that at least $1.5 billion in net new money would flow into the stock markets of UAE and Qatar after the upgrade of the two exchanges by MSCI by the end of this month.

Turnover in both countries’ stock markets has doubled this year and at least some of the meteoric performance has to owe to anticipation of the change.

On 24 April, MSCI indicated that it may apply an adjustment factor to the weights of a number of securities in the MSCI Qatar and MSCI UAE indices at the upcoming market reclassification review in May.

It is believed that the MSCI is concerned about the impact of significant inflows from foreign institutional investors into Qatar and the UAE with regard to the available free float to foreign investors on some securities. The difference between Foreign Ownership Limit (FOL) and available free float is known as the foreign room level.

Only a limited number of companies in Qatar had taken steps to increase their FOL levels since the June 2013 upgrade announcement.

Of the two markets, Qatar has a lower ratio of the average free-float-adjusted market cap relative to its full market cap of individual stock at 25% compared with 29% for MSCI UAE. Additionally, both markets have lower average free float to full market cap ratios compared with Emerging Market where the average ratio is 55%.

Whilst MSCI has stated that “the UAE equity market has not been highlighted by market
participants as problematic in terms of FOL levels” it stated that it will monitor the potential impact of the market reclassification on the foreign room of constituents of the MSCI UAE Index.

At least some of this year’s performance surge consists of traders betting on a squeeze in certain UAE and Qatari stocks. (With Bloomberg report)