Index provider MSCI has said that it will extend the review period for the potential upgrading of the MSCI Qatar and UAE indexes from frontier to emerging market status.
Many long-only investment firms are mandated to invest in indexes with emerging market status or higher. A reclassification would offer a boost to both markets, which have suffered lower trading volumes since 2008.
MSCI's decision on reclassification, which had been expected in June 2011, will be delayed until December to allow recent enhancements implemented on the Qatari and Emirati markets to bed in. Any reclassification of the MSCI Qatar Index and MSCI UAE Index will now only take effect as part of the November 2012 Semi-Annual Index Review at the earliest.
MSCI requires a period of assessment by market participants following major changes in a country's operational framework. New delivery versus payment (DvP) models were introduced in late April and early May 2011 and MSCI says few market participants have had the opportunity to make a full assessment yet. The additional review period will also give more time to regulators and stock exchanges to address remaining concerns raised by international institutional investors.
The introduction of DvP is intended to reduce the need for international institutional investors to use dual account structures in the two markets. But early feedback from market participants to MSCI has suggested the handling of failed trades in the new DvP models as an area requiring further monitoring. In addition, international investors have also reported concerns about the effect of stringent foreign ownership limits such as limited availability of shares to foreign investors. This point has been more strongly voiced for the Qatari market as large companies, such as Industries Qatar, have almost reached their foreign ownership limit and became almost uninvestable for foreign investors. Under current conditions the MSCI Qatar Index would not qualify for Emerging Markets on this criterion, MSCI said.
A spokesman for the Qatar exchange said, “We will continue to work with the regulators and all stakeholders including the investors to improve the market infrastructure, and we will continue our efforts to develop the market.
We would also like to emphasize that the progress made so far has received wide international recognition and appreciation.”