Toward the end of November and at the beginning of December last year, the stocks on the Doha Securities Market (DSM) and Dubai Financial Market (DFM) witnessed a rally. Whilst the rally was partly due to the global trend in markets, fueled by the possibility of a concrete agreement in the EU, an additional factor came into play: The possible upgrade of the Morgan Stanley Capital International (MSCI) Qatar and UAE indices as part of the MSCI's Annual Market Classification Review, that would give them access to funding worth $3 trillion. However, on Dec. 14, the indices were denied entry into the emerging market category, just like earlier that year and in 2010 and 2009 and the potential reclassification of these indices has been postponed again to June 2012, according to a report “The Economic Effects of an Upgrade in the Financial Market Indices of Qatar & the UAE”, prepared by Dana Al-Fakir, economist at KCIC, an investment firm specializing in emerging Asia investments.
After the MSCI decided to maintain the indices in the Frontier Market slot, the markets took a dip. Whilst the DSM suffered a minor dip, the DFM, which was more hopeful about the upgrade following through, plunged to its lowest in six weeks. A similar scenario ensued back in June of the same year. The effect of just the mere prospect of the markets joining the emerging index, illustrates the profound impact that an upgrade would have on both the Emirati and Qatari markets. The reasons for the upgrade delay this time around are almost an exact replica of those behind their denial back in June; the MSCI wants to give market players more time to fully evaluate the new delivery versus payment (DVP) models that were implemented early last year in Qatar, Dubai and Abu Dhabi. In the UAE, some glitches still need to be rectified via more regulations that will fully safeguard investor assets. In addition, foreign ownership of stocks in Qatar continues to be severely restricted, which was one of the reasons why they were less hopeful about the upgrade. Qatar needs to prop up its limits if it is to fulfill the MSCI's emerging markets prerequisite; whilst the UAE allows up to 49 percent foreign ownership of shares, Qatar only allows 25 percent, the report said.
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