Gulf Seen Muted After MSCI Move

The UAE and Qatar have not been upgraded to emerging markets status by index compiler MSCI.

Gulf markets are seen trading marginally lower on Thursday after disappointments from index compiler MSCI and lack of aggressive monetary easing measures from US Federal Reserve will keep investors away.

Equity index provider MSCI said it will maintain the UAE and Qatar as frontier markets, delaying upgrades for another year.

“Things were clear– we knew what the MSCI was looking for and the improvement was minimal,” says Sebastien Henin, portfolio manager at The National Investor. “It’s a complete non-event right now and the market will not react too badly.”

For Qatar, MSCI said the “very low foreign ownership limit levels imposed on Qatari companies is expected to be the only remaining impediment to the reclassification of the MSCI Qatar Index to emerging markets.”

While the UAE meets all the requirements for promotion, MSCI said there are specific market “accessibility issues” related to custody, clearing and settlement due to a delay in changing the current requirement that international investors still need to operate with a dual account structure.

MSCI had previously denied both Qatar and the UAE promotions in 2009, 2010 and 2011.

“The bulk of the investors are already out of the markets. There should be low volatility and low volumes today,” Henin adds.

Asian stocks outside Japan slipped and commodities fell broadly on Thursday after the Federal Reserve ramped up monetary stimulus by expanding “Operation Twist” but disappointed some investors who had been hoping for more aggressive measures. US shares also edged lower overnight.

Brent crude fell to its lowest in 18 months on Thursday at around $92 a barrel.

“In regards to the GCC equities, apart from the drop in oil price, it’s non-event for us,” says Rakan Himadeh, equity portfolio manager at Al Mal Capital. “Unfortunately but to no one’s surprise, Brent crude took a beating and is going to probably result in gains in recent days in GCC markets, specifically oil-related names, being given back.”

In Kuwait, the benchmark slipped 0.5 per cent on Wednesday, before the country’s constitutional court dissolved the parliament.

The court said parliamentary elections held in February, which gave the opposition a majority, were void and decided to restore the previous assembly.

“The old parliament being reinstated is likely to benefit the private sector. I expect to see some positive reaction in the market,” said Talal Al-Hunaif, senior investment analyst at Coast Investment and Development Company.