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ANALYSIS

UAE, Qatar index upgrade to boost Mena growth

Dubai, May 24, 2014

The UAE and Qatari markets' reclassification to MSCI Emerging Markets will have a significant effect on the index which may lead to more and more institutional investors entering these markets, a positive development for the longer term growth of the region

On June 2, both the Qatar and the UAE will be reclassified from the MSCI Frontier Markets Index to the MSCI Emerging Markets Index.

This implements the second part of MSCI’s 2013 annual market classification review, and follows the reclassification of Greece from Developed to Emerging market status, and Morocco from Emerging to Frontier market status on November 27, 2013.

The changes will have a significant effect on the index. Bothe the Gulf states currently have a 36.3 per cent weighting and their reclassification will proportionately increase the exposure to the long-term growth potential of markets in Africa, Asia and Latin America, as well as other markets in the Middle East such as Kuwait and Oman.

The weightings on June 2 may vary depending on the price movements of securities, said experts.

"Africa is one of the regions where we see strong long-term investment potential, and one consequence of this change is that we expect to see increased attention directed to markets in the region," they stated.

It’s one of the characteristics of the Frontier Markets universe that it continues to evolve as economies develop, and one of the reasons it remains such an exciting asset class for investors, in our view.

According to experts, the reclassification will help reduce the overlap between frontier markets and the Mena region.

"Over time, we see both Mena and Frontier Equities having a role to play in delivering long-term growth for well-diversified investment portfolios, thanks to positive demographics and urbanisation, the increased discretionary spending which accompanies this, and rich endowments of natural resources, which provide investment opportunities for companies as well as helping to finance the investment in infrastructure needed to support economic and population growth."

As there are no changes to the country constituents of the Mena region, the reclassification will have no effect on the Baring MENA Fund. As always, any investment decisions will be determined by its fundamental investment views.

According to experts, the effect on the MSCI Emerging Markets Index is likely to be modest, with a probable weighting of just over one per cent for the Qatar and the UAE when they enter the index in June.

At the margin, however, we may start to see more institutional investors entering these markets as a consequence of the change, which should be positive for the longer term development of the region.-TradeArabia News Service




Tags: Qatar | UAE | stocks | growth | MSCI |

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