The chairman of the Middle East Investor Relations Association, Alex MacDonald-Vitale, warns bourses and regulators not to rely on the current market status as the fluctuations in the market status can occur at any given time. He warns that index providers might view loosening standards to merit a return to prime market status.
In 2014, Qatar and the UAE got upgraded to the emerging market status by the index provider. This gave way for Qatar and UAE to benefit from increased inflows from foreign funds which is said to be about US$1 billion during that point in time.
Mr. MacDonald pointed out that an inclusion in the MSCI and FTSE’s Emerging Market indices is a very good opportunity for market authorities and likewise the government.
“The gains benefited from an upgrade of market cannot be underestimated, as it gives a definite boost in the market activity and also the professionalism of locally listed companies.”
However the real challenge is maintaining the upgrade market status since high expectations is geared towards such market status and a decline in performance will lead to a downgrade.
Greece was given as an example by MacDonald when it was downgraded in 2013 as a result of failure to meet its target regarding securities borrowing and lending facilities, short selling and transferability.
He went on to state that the same could happen to the UAE and Qatar.
“It’s a risk that should be carefully thought of and measures should be put in place to ensure that they meet up to the expectations of the wider investor community. Also there should be good investor relations.”
In January, the UAE’s Securities and Commodities Authority established a new policy in regards to investor relations which requires all companies that have been listed to develop and upkeep IR departments, appoint an acting IR officer and to give account of all financial statements, methods and projections.
“It is very important for investors to have good investor relations during both good and bad times but this have not yet been fully practiced by local firms.”
He went on saying “for a large investor from outside the region, it’s not sufficient to get into a quarterly call or a strategy update. They expect to meet with a company’s head executives face to face at least once a year.”
MacDonald emphasized that there is need for regulators to maintain their standards which also means that offending companies and board members should be brought to light.
Although Saudi Arabia has not yet been upgraded into the emerging market, the Capital Market Authority (CMA) in June sentenced two board members of troubled Saudi contractor Mohammed Al Mojil Group to five years imprisonment for violating rules in relations to accumulated losses.
MacDonald was in favor of the actions taken and is quite surprised that the UAE and Qatar are not taking the same steps as Saudi Arabia even though they are not part of the emerging markets.