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On December 15, MSCI announced the results of their review of Qatar and the UAE. This review took place to decide whether the two markets could form part of the MSCI Emerging Markets Index - and therefore benefit from financial inflows from global Emerging Markets tracker funds. It wasn't good news as both were unsuccessful in their bids, though the reasons were very different.

For Qatar the sticking point remains - as in previous reviews - foreign ownership levels. Qatar hasn't raised the percentage of stocks that can be owned by foreign institutions. However, for the UAE the story is quite different.

The last review in June wanted to give investors more time to assess how the newly implemented Delivery Versus Payment (DVP) model - where stocks and funds change hands at the same time - settles down. The December review accepted that DVP has had a positive effect on the market, but concerns remain about a potential 'forced sell out'.

A forced sell out is triggered in the event of a broker executing a sale erroneously.

When the custodian declines to deliver the stock, and all efforts of the broker to source the stock from the market to meet his delivery obligation fail, the investor will have to deliver the stocks from his account, although he had no desire to sell these shares.

While this possibility certainly exists, we are not aware of this actually having taken place since the implementation of the DVP model. So, while it's a legitimate concern, it's not one that's necessarily borne out from investor experience.

This reflects the extremely risk averse sentiment that investors have towards markets now. The next review is in six months and both markets have a clear view on what they need to address if they are going to enter the Index.

GEORGES ELHEDERY, Head of global markets, MENA, HSBC

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Publication:Gulf Business
Geographic Code:7QATA
Date:Jan 18, 2012
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