UAE and Qatar need to keep improving stock markets

05 June 2014

More developments needed after MSCI upgrade caused markets to quieten down

The UAE and Qatar will need to keep developing their stock markets to avoid potential “adverse effects”, following their upgrade to emerging markets status by the US’ MSCI, said Eric Bertrand, principal exchange business strategy consultant for NYSE Euronext, during a panel discussion at the AFE Equities Summit in Dubai on 4 June.

Both countries were officially inducted as emerging markets on 1 June, which is expected to attract about $500m-$1bn from passive, foreign index-tracking funds. But the development could also lead to some local retail investors selling their stocks, which may cause volatility over the next six months as liquidity is rebalanced.

It is likely the markets will quieten down after the boost by the status upgrade, according to Betrand, who added that they will need to grow in size in order to attract more attention from investors. At the moment, the UAE and Qatar represent just over 1 per cent of the emerging markets index.

Investors will expect structural reforms, said Betrand.

“There will continue to be pressure for transparency and corporate governance. Big international players like to do business in the way they’re used to doing it, so they’d like to see the same [standards] as in the US or Europe,” he said.

“There are still improvements expected on the post-trade side. Some, such as a securities lending and borrowing system, have been addressed, but there should be other items on the agenda such as the availability of omnibus accounts and a central counterparty function, trading derivative products. Investors would also like to see the possibility to trade regionally as opposed to separately on each exchange.

Rashid al-Mansoori, CEO of Qatar Exchange, said that as a small market, the exchange is aware it faces several challenges. He announced plans to soon introduce margin trading and trading of exchange-traded funds, as well as the possibility to allow derivatives trading in the near future.

Hassan al-Serkal, chief operations officer of the Dubai Financial Market (DFM), said the bourse is looking into the introduction of short-selling.

All three panelists also stressed the need for more initial public offerings (IPOs) in order to further diversify and increase the size of the market.

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