UAE may be recast as 'emerging'

MSCI Barra will launch a 12-month consultation process to decide whether to upgrade the UAE, Qatar and Kuwait to "emerging market" status in its index.

The announcement was made as part of the MSCI's country classification review, which recommended downgrading Jordan from emerging to frontier market status.

The MSCI index is a global benchmark and so inclusion of the Gulf trio will hugely boost foreign inflows into their respective capital markets, with a recent estimate from Shuaa Capital claiming this could be worth up to $50 billion (Dh183.64bn).

Foreign money is visible on the UAE exchanges, but this typically comes from speculative short-term investors while the major long-term overseas investors are yet to enter because of the country's omission from the MSCI EM index.

As part of the consultation, MSCI will talk to international institutional investors and they are expected to give a favourable response to the UAE's case. Another favourable factor is that MSCI will no longer consider geopolitical risk as a make-or-break criterion because of the difficulty in assessing this. While the GCC states are a beacon of relative stability, their proximity to the devastation in Iraq and turmoil in Lebanon, Palestine and Iran has counted against them in the past.

The final decision will be made not later than June 2009, while MSCI will release a preliminary assessment in December.