Interpreting Middle East Economic News and Analyzing Market Trends

Qatar and UAE finally get upgraded to emerging market status while Greece and Morocco go the other way

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Photo: Gulf Business

  Qatar and the UAE finally got upgraded to emerging market status by MSCI.  The move is widely celebrated in the region as the ticket to bringing in foreign institutional investors and increase liquidity in the tiny Gulf markets.  Greece, on the other hand, has gone the other way…

 

Qatar and the United Arab Emirates were upgraded to emerging-market status at MSCI Inc., while Greece lost its classification as a developed market.

The New York-based index provider, whose stock gauges are tracked by investors with about $7 trillion in assets, downgraded Morocco to a frontier market. MSCI will keep South Korea and Taiwan’s emerging-market status, and placed China A-shares on review for potential inclusion in the emerging-markets category, according to a statement today. Israel wasn’t added to the MSCI Europe Index.

Read the full story from Bloomberg.

 

This is good news for Qatar and the UAE over the long-run.  Over the short-run, expect to see some fresh cash come into these markets as well as local speculators, who will not want to miss this opportunity at making some quick cash.

 

The last part of the story is interesting… “Israel wasn’t added to the MSCI Europe Index.”  Now I’m no European market analyst, but my guess is that Israel wasn’t added to the Europe index because Israel is not in Europe.

 

Greece, however, has taken another turn in the wrong direction, but there could be a hidden benefit to being downgraded.  Here’s a story from CNBC:

  

Greece’s fragile government faced an internal revolt and fierce public protest on Wednesday over the sudden closure of state broadcaster ERT, hours after the humiliation of seeing its bourse downgraded to emerging market status.

The twin setbacks, coupled with the derailing of a troubled privatization program, blew a hole in rising investor confidence that had prompted Prime Minister Antonis Samaras to declare the risk of a “Grexit” from the euro was dead and a “Greekovery” was under way.

Yields on Greece’s 10-year benchmark bond crept back above 10 percent after Athens failed to sell state gas firm DEPA on Monday, leaving it short of cash to meet its international bailout targets.

The stock market traded at two-month lows after Greece became the first developed nation ever to be lowered to emerging market by equity index provider MSCI.

The public broadcaster was yanked off air just hours after the shutdown was announced in what the government said was a temporary measure to staunch an “incredible waste” of taxpayers’ money prior to relaunching a slimmed-down station.

Labour unions called a 24-hour national work stoppage for Thursday and journalists went on an open-ended strike, forcing a news blackout on privately owned television and newspapers.

“The strike will only end when the government takes back this coup d’etat which gags information,” the journalists’ union said.

Some ERT journalists were occupying the broadcaster’s building in defiance of police orders and broadcasting over the Internet. Hundreds of employees and protesters gathered outside.

Worrying

MSCI said the Athens bourse did not reflect improved practices in developed markets for securities borrowing, lending facilities, short selling and transferability of shares. It had not met the developed market criteria for size for two years.

Still, brokers said more money may ended up invested in Greek stocks over the medium term due to the country’s weighting in emerging market indices, since its exposure in developed markets global indices was marginal.

“The debt crisis in the last three years hit all triggers, prompting developed market funds to reduce their exposure,” said Theodore Krintas, head of wealth management at Attica Bank.

Emerging market funds could not enter since Greece was classified as developed market, now it will be on their radar.

Read the full story from CNBC.

  

So there is more bad news for Greece, but there is also some good news.  The bad news is that Greece couldn’t even sell the state gas firm, which leaves it short on cash per the terms of bail-out #3.  There is a chance Greece might ask for yet another bail-out, but for obvious reasons, it cannot be called a bail-out.  Instead, it will be given a more media-friendly name.

 

The somewhat good news is that the downgrade of Greece to emerging market status actually put the country on the radar of emerging market funds who have been eying the country, while developed market funds have been running for the “Grexit.”

 

Cyrpus too might have a chance at being downgraded and will soon follow Greece’s example in asking for more than one bail-out.