International equity index compiler MSCI will cut the weightings of eight major Qatar and United Arab Emirates stocks when it upgrades those countries to emerging market status, according to a document seen by Reuters.
The document, sent by MSCI to financial firms at the end of last week, said the weightings of those stocks – four in Qatar and four in the UAE – would be reduced “as they may pose accessibility issues to international institutional investors”.
Repeated calls to MSCI’s London offices for comment were not answered on Monday.
MSCI decided last year to lift Qatar and the UAE to emerging market from frontier market status at the end of May 2014. On May 14, it is to announce the final list of constituents of its revised emerging market index.
This is expected to attract fresh foreign money to the two countries; some analysts have estimated each country could draw over $2 billion. Significant amounts of new money have already started arriving.
But in its document, MSCI said it would “apply an adjustment factor of 0.5” to the weightings of Industries Qatar, Qatar National Bank (QNB), Commercial Bank of Qatar and Doha Bank.
It said that as foreign money entered Qatar, overseas investors might run out of room to buy shares in these companies because of low ceilings for foreign ownership of them. Some Qatari firms have been lifting their ceilings but for Industries Qatar and QNB they are still low at 12 per cent, MSCI said.
Investors have not said the UAE is as problematic as Qatar for ownership ceilings, MSCI said. But it will apply the same adjustment factor to Arabtec, Dana Gas, Dubai Islamic Bank and Emaar Properties as foreigners could have trouble buying their shares in future.
MSCI added that it might reconsider its decision to apply the adjustment factor to the eight stocks if those companies raised their foreign ownership ceilings before mid-May.
Simon Kitchen, director for regional strategy and research at investment bank EFG Hermes in Dubai, estimated that Qatar’s weight in MSCI’s emerging markets index would drop to 0.47 per cent because of the adjustment from 0.61 per cent otherwise.
The UAE’s weight would drop to 0.59 per cent from 0.76 per cent, he said in a report, adding that even if companies in Qatar decided to raise their foreign ownership limits further, increases above 25 per cent tended to take a lot of time.