UAE- Leaders cheer MSCI move

(MENAFN- Khaleej Times)  Top government officials hailed the up-gradation of UAE bourses from frontier to emerging markets and said the landmark decision from global index compiler Morgan Stanley Capital International (MSCI) will enhance the competitiveness position in every international indices, reports and podiums. Referring to preliminary estimates by analysts, they said the UAE markets may attract $1 billion to $2 billion inflows from international investment institutions that will have a positive impact on the economy. UAE Economy Minister Sultan bin Saeed Al Mansouri, who is also the SCA Board Chairman, said the elevation was in light of a number of financial market technical criteria and other objective reasons including the country's economic development indices like the GDP, per capita income and growth rate, the size of the economy and liquidity, market accessibility and other issues which reflect the strength of the UAE national economy, which are not available in many emerging markets, even in some advanced markets. "I expect the decision to elevate the UAE market status to reflect a value addition to the local markets and a giant stride forward as it certifies that the UAE had met all the requirements of the international agency to deserve this status on its index," Al Mansouri said in a statement on Wednesday. "I also look forward to seeing the new status of emerging market on the MSCI Index contribute to shedding more light on the UAE markets thus attracting more investors and managers of mutual funds and portfolios. This, hopefully, would boost internal liquidity of the UAE market, enhance confidence on and give greater in-depth to the market in the medium and long term, giving it more power and boosting its competitiveness status at the international level," he added. He said the elevation of UAE markets from the frontier to emerging market status by the MSCI came to crown the SCA's sustained efforts as part of a comprehensive strategic plan, aimed at achieving greater development of the country's financial markets and boosting the national economy, in accordance with the best international practices and within the framework of the UAE's Vision 2020 programme. "The UAE's ability to achieve the highly anticipated elevation, in fact, is a reflection of the country's development drive and sustained support under the wise leadership of the President, His Highness Shaikh Khalifa bin Zayed Al Nahyan, and His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai," Al Mansouri said. In conclusion, he said the elevation reflects, furthermore, increasing international confidence in the local markets, making them attractive to the eyes of the international credit rating agencies. "Hopefully, this will reflect positively on the markets and would give a major push forward to them, taking them to a new era of development and international attraction." Securities and Commodities Authority (SCA) chief executive Abdullah Al Turifi said there would be direct and indirect advantages for the UAE's joining the MSCI Emerging Market Index. "Such achievement will allow the UAE markets to get rid of their current classification as start-up markets and to take their natural place on the map of emerging markets, which includes countries such as Russia, China, Brazil Malaysia and Turkey," Al Turifi said. He said the SCA has made a number of initiatives in its efforts to gain the elevation of UAE markets to the emerging market status to boost the local markets' competitiveness on the international arena. "These efforts started some years ago with the contacting of the international rating agencies, including the MSCI, FTSE and Standard and Poor's (S&P), providing them with the required information. These efforts has paid off in the past as the UAE markets gained elevation to the Second Ties Emerging Market status by the FTSE, laying the ground for ultimate elevation to 'emerging market' status, in addition to listing the UAE markets under the Russell Investment's 'emerging market' index - the only country to achieve that from the Gulf Cooperation Council states," he explained. He said the strong gains achieved by the markets since the beginning of this year should also be noted as they are considered the biggest over the past four years. The UAE markets have been leading the global markets in terms of growth rate. About the benefit of up-gradation, he said the immediate advantage is that such upgrading will make more investors around the world - even if they are not associated with this index - to pay attention to the advantages of the UAE capital markets and consider investing in them. "The UAE markets after joining "Morgan Stanley" will be in the centre of interest of investment portfolios - especially corporate investments of major portfolios - that keep pace with indexes and enter the markets covered by such indexes even so that their performance remain rewarding compared to the performance of the markets." Dubai Financial Market (DFM) also welcomed the MSCI annual market classification review to upgrade the MSCI UAE Index to emerging markets status. Essa Kazim, managing director and chief executive, Dubai Financial Market, said: "This development is overdue in light of the market infrastructure improvements made and ticking of all upgrade requirements long time ago. We are delighted to see the UAE market upgraded to emerging markets status, which reflects international investors' confidence in our markets and their satisfaction with what we have accomplished," Kazim said. He said DFM spared no effort and has taken numerous initiatives to lay out the necessary frameworks for various development steps including the implementation of the "Delivery versus Payment" (DvP) mechanism since 2011 as well as the implementation of a Buyer Cash Compensation feature last May. "Additionally, we have been actively engaged in productive discussions with various market participants including custodians and institutional investors via a series of meetings held in the global financial centers. The aim of these meetings was not only to explain measures taken but also to listen to their remarks and feedback on further initiatives to follow", Kazim added. "DFM reiterates its commitment to ensure that market infrastructure meets international best practice recommendations. We will be implementing securities lending and borrowing together with market making once we have completed the necessary regulatory process. This will further increase the UAE's attractiveness for foreign investments thereby placing our market in the position amongst international markets", Kazim said. Dr R Seetharaman, group chief executive of Doha Bank's welcomed the MSCI decision and said It is definitely a boost to the market sentiment, the foreign investment is expected to rise and improve liquidity in these markets. "The measures taken by Qatar and UAE to improve their market accessibility have resulted in their upgrades to emerging market Status," he said. Dr Giyas Gokkent, group chief economist at National Bank of Abu Dhabi, said the upgrade to MSCI Emerging Markets Index from the Frontier Index has been a long time in coming. "Inclusion into the MSCI Emerging Market Index is expected to attract foreign investment of several hundred million dollars given the 0.4 per cent weight of the UAE in the index. Passive mutual funds such as index funds and exchange-traded funds that benchmark MSCI Emerging Market Index will automatically incorporate UAE stocks. "UAE market performance has already been very strong in 2013 with DFM up by 45 per cent and ADX up by 36 per cent year-to-date driven by catalysts such as rising profitability of listed firms and the prospect of inclusion in MSCI EM index. The market may have already, at least partially, priced in MSCI EM inclusion. Historically, inclusion in MSCI EM index had led to strong market performance in Egypt for a few months when that country's exchange was included and then faced correction after a strong run. "I expect IPO activity to pick up. There have already been announcements regarding a number of potential IPOs for listing on DFM and ADX. These will generate further interest by investors." Irfan Ellam, head of Mena Equity Research, Emirates NBD, said the MSCI upgrade will not directly impact the number of IPOs. However the MSCI upgrade should help boost the flow of fund into the countries, through access to a larger pool of assets, and improve liquidity, which in turn should prove positive for valuations. This would mean that, over time, the expectations of potential IPO candidates and equity investors would be more closely matched and therefore could indirectly help bring more IPOs to the market. He said the DFM and ADX markets have had an impressive year to date, as growth prospects for corporate earnings improve over previous years. Looking forward earnings are expected to continue to grow overall in 2014 according to market estimates, which should prove beneficial for local equities. Shailesh Dash, chief executive of Al Masah Capital Management, said it is excellent news for UAE markets and an affirmation that the markets have truly turned a significant corner. Even though foreign inflows technically do not come in until 2014 when the actual classification kicks in, we should see a smart rally until then. "We will see pockets of weakness as people lock in profits, as should be expected in a healthy market, but in general the sentiment will remain positive and now there is an artificial floor built in, limiting the downside. Even though only a handful of stocks will meet the actual requirements of classification, the likes of Emaar and First Gulf Bank, the general residual impact should be felt across the board." Mohammed Abdul Rahim Al Fahim, chief executive of the Paris Gallery Group of Companies, said it is a well-deserved status. "I wholeheartedly welcome MSCI's decision to upgrade the status of UAE. The 'emerging market' elevated status means a whole lot to our rapidly growing economy. It speaks volumes about the efforts and achievements of the country and its financial markets." "This recognition is also the realization of the dreams of our rulers. I take this opportunity to congratulate the rulers of our country for their tireless efforts to strengthen the economy and open up new avenues for investment. They spared no effort in this regard. With our non-oil trade growing in double-digit percentages, increased tourism, and a robust state-of-the-art infrastructure, the UAE is poised for strong growth," he added. "The MSCI decision to upgrade Qatar and UAE from frontier markets to emerging markets, with effect May 2014, reflects a growing realisation of how far these economies and their financial markets have developed in recent years," said Sam Vecht, BlackRock's head of the emerging markets specialist team and portfolio manager of the Frontiers Investment Trust.