MIDEAST STOCKS-UAE, Qatar Bourses Climb After MSCI Upgrade; Egypt Sinks

United Arab Emirates and Qatar bourses climbed on Wednesday after index compiler MSCI said it would include the two countries in its emerging markets benchmark. Egypt tumbled to an 11-month low partly on worries about the possibility of being excluded from the same index.

The reclassification by MSCI is seen as an important step in developing the Gulf as a destination for equity investment in the long term.

Fund managers estimated the upgrades might draw a fresh $500 million each to the UAE and Qatar when they took effect next May. More importantly, they could help to improve many foreign investors’ perception of the Gulf.

“This will get some institutional investors from outside the region to lose their inhibitions and in many ways faulty thinking,” said Antony Mallis, chief executive officer at Securities & Investment Co (SICO) in Bahrain.

Dubai’s index rose 1.6 percent, extending its 2013 gains to 47.6 percent. Abu Dhabi’s benchmark advanced 2.7 percent, posting its biggest one-day gain since December 2009 and extending its year-to-date rise to 39.1 percent.

The upgrades had been partially priced in as speculators had been busy in the days leading up to the announcement. The market’s rally has been predominantly driven by retail investors, and heavier fund flows from institutional investors are only expected next year.

Qatar’s reclassification came as more of a surprise because companies there still maintain tight caps on foreign ownership, and the caps will not be high even after planned changes. MSCI said it was satisfied by Qatar’s intention to reform, however.

Doha’s index rose 1.8 percent to its highest level since September 2008.

Because the markets have already been bought actively in recent months, traders and fund managers said they would not necessarily continue rising in coming days on the MSCI decision, especially given the poor global climate for emerging markets.

“The impact will not be the same as it would have been before interest and liquidity picked up to drive the current rally on UAE bourses,” said Sebastien Henin, portfolio manager at The National Investor in Abu Dhabi.

Elsewhere in the Gulf, Saudi Arabia’s index gained 0.5 percent. Some fund managers speculate that to avoid missing out on new flows of funds into the Gulf due to the MSCI decision, Saudi Arabia may now go ahead with a long-delayed plan to open its market to direct foreign investment, though there is no concrete evidence of this.

EGYPT

In Egypt, local investors led a sharp-sell off after MSCI said a shortage of foreign currency in the country might eventually prompt it to be excluded from the emerging market index. Investors have reported problems with currency when repatriating money from Egypt, an MSCI official said.

Sentiment was already weak because of the approach of June 30, the one-year anniversary of President Mohamed Morsi’s administration. The opposition plans massive demonstrations to mark the date, raising fears of violence.

“It’s a complete meltdown for the market – all the negative news is hitting the market,” said Mohamed Radwan, director of international sales at Pharos Securities.

“People just had enough of it and sellers on a daily basis prove that they are making the right decision.”

The Cairo index lost 5.2 percent to 4,598 points, its largest one-day decline since November 2012. It broke below major technical support at the November low of 4,683. There is now no strong support above the 2012 low of 4,027.

Morocco’s index fell 0.4 percent after MSCI downgraded it to frontier market status. The decision had largely been expected, and the market had been falling in anticipation during recent weeks.

WEDNESDAY’S HIGHLIGHTS

DUBAI

* The index rose 1.6 percent to 2,396 points.

ABU DHABI

* The index climbed 2.7 percent to 3,661 points.

QATAR

* The index advanced 1.8 percent to 9,518 points.

EGYPT

* The index tumbled 5.2 percent to 4,598 points.

SAUDI ARABIA

* The index gained 0.5 percent to 7,624 points.

KUWAIT

* The index slipped 0.7 percent to 7,972 points.

OMAN

* The index declined 0.6 percent to 6,621 points.

BAHRAIN

* The index gained 0.3 percent to 1,203 points.

Source : Reuters