UAE index upgrade to bring in $700m: S&P

September 23, 2014

Passive investors expected to lead inflows in wake of formal classification as emerging marketThe UAE index is expected to attract $700 million (Dh2.57 billion) of inflows through passive investors after being upgraded as an emerging market, the head of S&P Dow Jones Indices told Gulf News on Monday, following the formal upgradation of the UAE and Qatar indexes to emerging markets from frontier markets.

“We will see several hundred million dollars coming into these markets because the passive investors will be replicating the weight of the market in the index,” Alka Banerjee, managing director of Standard and Poor’s Dow Jones Indices, told Gulf News in a phone interview from New York.

“The active investors will also look at the index and make the allocations accordingly,” she said.

S&P said Qatar would carry a weightage of 0.9 per cent on the S&P emerging markets BMI index while the UAE would have a 1.0 per cent weightage. That compares with a 24 per cent weightage for China and 11.3 per cent for Brazil.

“The impact will be, once these markets come to a global pool of fund flows, more and more investors become aware of them and they see it as a natural target. There is more interest in investing into it directly either through direct portfolio investments,” Banerjee said, adding that “in general, it’s on the radar of the global investors and that’s a good thing.”

S&P has a total of 23 emerging markets including China, India, Russia Brazil, Peru, Mexico, Philippines among others.

S&P’s announcement followed a similar move by the MSCI at the end of May. Global markets index provider MSCI reclassified the MSCI UAE and MSCI Qatar indexes to emerging markets from frontier markets.

“UAE and Qatar were definitely considered better in terms of ease of access compared to other markets,” Banerjee said.

The S&P also considered other countries like Saudi Arabia, Bahrain, Kuwait and Oman. Foreign investors can’t invest directly in Saudi Arabia, which is why the kingdom was not upgraded, she said. “There were issues about registration processes in these market, and tedious and lengthy processes for global investors,” she said.

“We have certain conditions, like for countries which exceed $15 billion of market capitalisation and have a GDP [gross domestic product] of more than $15,000 plus per head. All these basic conditions make a country eligible for further consultation where we ask our client base of their experience in their acting business or investing in those countries,” Banerjee said.

S&P undertakes consultations each year and obtains a consensus on which markets may be ready for an upgrade.

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