MSCI status reflects strong market fundamentals

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The upgradation of the UAE bourses to MSCI Emerging Market status reflects the strong market fundamentals, which have attracted global fund managers to the region.

Speaking on the huge milestone, leading portfolio managers, investment bankers and financial analysts in Dubai and Abu Dhabi told Khaleej Times that the upgrade is just a beginning of many more surprises, the nation has to offer.

Jahangir Aka, senior executive officer of the world’s leading money manager SEI ME, said in Dubai that his company always had a bullish view of the second-biggest Arab economy.

Describing the upgrade as a “recognisation of success”, he said this would be an enabler for its future successes.

He termed it as an approval of what has been going on in the market in the past six-nine months on the back of strong economic fundamentals that boosted liquidity, attracting global investors who have already allocated money to gain from the fundamental driven market.

Jahangir said all those hesitant players who were looking at the market from the outside would certainly start pulling the trigger.

Asked about his company’s strategy, to capitalise the new business, he said: “We like the story and so again from our prospective, this is just a rubber stamp of the view, we have on the market. This would reflect in our position in the fixed income and on the equity side.”

A BofA Merrill Lynch Global Research issued on Thursday termed it “a positive surprise”.

The UAE’s upgradation, while supportive, will result in less passive inflow, while the UAE’s world beating performance year-to-date and valuations argue that this market’s outlook will be more heavily impacted by global equity sentiment than relatively modest MSCI driven inflows over the next 12 months.

Sachin Mohindra, portfolio manager at Invest AD, in Abu Dhabi said: “The upgrade provides greater legitimacy to the market for long-term investors, and will urge dedicated emerging markets investors to take a view on stocks overlooked before, such as Emaar and FGB.”

In the short term, Mohindra saw some short-term profit taking — a sell-on-fact phenomenon — especially given the strong rally this year.

“But in the coming months we can expect investors to allocate greater amounts to the region, and it should be stickier, long-term institutional money,” he said.

On liquidity, Mohindra said it has been higher this year in the UAE markets, and that would be one of the contributing factors in the MSCI’s decision to upgrade the market to emerging market status.

“This decision has contributed to a virtuous cycle, where greater liquidity encourages more investors to enter the market,” he said.

Peter Gotke, managing director and head of GCC Depositary Receipts at BNY Mellon, said: “We have seen increased inflows from foreign investors for some time now.”

“Given current liquidity in local markets, the UAE and Qatar stand to benefit from a substantial injection of capital.”

Declan Hayes, managing director, Transaction and Restructuring services at Deloitte Corporate Finance Limited, said: “The upgrade will result in an increase in the pool of investors who are now permitted to invest in the UAE listed entities.”

“The upgrade should therefore increase demand for UAE-listed shares, which could increase pricing and therefore valuation but also has the potential to improve share liquidity,” he said.

“Continuing improvements in Equity Capital markets typically result in more IPO candidates using the capital markets to finance their growth strategies, thereby having a positive impact on the local economy,” Hayes said.

Sean Costello, chief representative office of Jersey Finance in Abu Dhabi called it a blessing for the regional stock exchanges.

“For the UAE, the upgrade will serve to create a stronger, more diversified and sophisticated investment environment in the country,” he said.

“The UAE markets have already performed well in the first-half of this year and we are likely to see them jump even higher following this announcement, which is good news for in-bound investors,” Costello said.

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