DUBAI, (Reuters) – United Arab Emirates (UAE) was classified as an emerging market for the first time by index provider FTSE Group on Thursday, potentially paving the way for inflow of foreign institutional money to the region.
FTSE confirmed the classification of UAE as a “secondary” emerging market within its global equity index series, which the index provider says is the first time the country has been added in a global equity universe.
“The announcement highlights structural improvements made to UAE financial markets and is an important step for the market’s global recognition,” Jonathan Cooper, FTSE Group’s managing director for Middle East and Africa, said in an emailed statement on Thursday.
UAE and other Gulf states such as Qatar are generally classified as “frontier” markets, a classification seen as a riskier investment option than other major emerging markets such as China and India.
Additions to globally recognised index groups are seen as positive, since it could trigger passive funds tracking the index to allocate more money and provide additional room for active funds to add to their investments.
“This may be positive for the UAE markets. Trading volumes may increase but that’s not clear yet,” said Mohamed Khaled Prime Emirates relationship manager in Abu Dhabi.
“If this move attracts new investors, then it will certainly be positive but we will have to wait and see.”
Markets in the region reacted positively to the FTSE announcement. Dubai’s index recovered its earlier losses to trade up 0.6 percent higher at 0930 GMT. Abu Dhabi bourse rose 0.1 percent.
UAE markets have been hit hard in the recent past by lack of institutional interest and slumping volumes. Dubai’s index is down 9.8 percent year-to-date, making it the worst performing Gulf benchmark, despite an almost 10 percent rally in September.
Changes to the UAE’s classification will be implemented after the markets close on Friday and take effect at the start of trading on Monday, FTSE Group said.
“This decision is long awaited and should boost confidence in both domestic and international investors, as the UAE market continues to evolve and attract international attention,” said UAE market regulator Securities and Commodities Authority (SCA) in the statement.
In June, another index provider MSCI Inc, maintained the UAE and Qatar stock markets as frontier markets in its 2010 annual market classification review, dashing market hopes for an upgrade to emerging market status.