The upgrade of Qatar and the UAE to emerging markets status by index compiler MSCI is seen as a nod of approval from institutional investors. But it is unlikely there will be an immediate surge in investments from active portfolio managers following the reclassification next year.

Currently, regional markets are dominated by retail investors, so an increase in institutional investments – part of a long-term strategy rather than based on speculation – would help stock markets experience less volatility.

Regional fund managers including US-based BlackRock, the world’s largest asset manager, have said that while they view improvements in systems and regulation positively, they will not be increasing exposure to the region.

Foreign ownership limits – at 49 per cent in the UAE and 25 per cent of free float in Qatar – still limit the amount foreigners can trade on the relatively small exchanges. Corporate governance regulation is not always enforced, causing a lack of clarity on deals made by companies and financial reports coming in late.

A string of planned initial public offerings could help boost liquidity and offer more diversification, but many profitable local companies face obstacles if they want to go public regionally, forcing some to list abroad instead.

Unless these issues are resolved, institutional investors will show limited interest. Any surge in trading will be dominated by retail investors and this could lead to massive sell-offs once the markets are actually reclassified in May 2014.