The upgrade from MSCI Frontier Market status to the Emerging Markets Index was first announced last July in the MSCI’s 2013 annual classification.
The two regions will now account for just 1% of total emerging market value, but the move will greatly affect the MSCI Frontier Market Index, where they accounted for 36%.
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.
Chairman of the Qatar Investment Fund, Nick Wilson, said: “Qatar’s inclusion in the MSCI Emerging Markets Index is a strong reflection of the country’s progress in recent years.
“The upgrade is further demonstration of the increasing attractiveness of Qatar for investors and brings Qatari stocks to a broader range of investors.
“The combination of strong growth, modest valuations and high dividend yields makes investment in Qatari stocks a compelling proposition.”
Earlier this month, Michael Levy, investment manager, EMEA & frontier market equities team at Barings Asset Management, said the two regions would only see “modest” initial investment following the upgrade.
However, he expressed hope for long term growth in the regions and foresaw positive effects on remaining frontier markets.
“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,” he said.
“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 noted that 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”.
