The two jurisdictions will account for just over 1% of the total MSCI Emerging Markets Index when they move from their frontier market status on 2 June.
But Michael Levy, investment manager, EMEA & frontier market equities team at Barings Asset Management, says that while the effects may initially be slow, the long term effects will be more substantial.
He said: “We may start to see more institutional investors entering these markets as a consequence of the change, which should be positive for the longer term development of the region.”
However, he said that the upgrade will affect the MSCI Frontier Market Index greatly, due to the 36.3% weighting the two jurisdictions currently have on the emerging market index.
“Their reclassification will proportionately increase the exposure to the long-term growth potential of markets in Africa, Asia and Latin America, as well as other markets in the Middle East such as Kuwait and Oman,” he said.
He also said the reclassification will help to reduce the overlap between frontier markets and the MENA region because both will play a role in delivering long-term growth for well-diversified investment portfolios owing to “positive demographics and urbanisation”.
The reclassification of the two jurisdictions was first announced in July last year, as MSCI’s 2013 annual classification.
At the time, MSCI also confirmed that it was to downgrade the indices of Morocco and Greece from emerging market status to frontier and from developed market to emerging market status respectively.
In reclassifying the Qatari and UAE indices, MSCI said market participants recognised progress made by the relevant authorities in both countries in enhancing the “delivery versus payment model”. This had previously prevented MSCI from making the upgrades and had led to a number of false dawns regarding the reclassifications.
In December, Abdul Kadir Hussain, chief executive at Mashreq Capital, said the upgrade was a “driving force” the company’s re-rating of the Middle-Eastern market.
Click here to read an International Adviser interview with Hussain
