S&P Dow Jones Indices has upgraded Qatar and the United Arab Emirates to emerging market classification, while downgrading Greece from its developed market classification.
South Korea and Taiwan will be designated as developed and emerging markets respectively, while Egypt and Morocco will retain their emerging market classification.
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Rationale for Qatar’s upgrade
Providing rationale for upgrading Qatar to emerging market from frontier market classification, S&P notes the country has introduced DVP (Delivery Vs Payment) settlement system in 2011, besides enhancing it twice in 2012 to offer full protection of investors’ assets in the event of rejection by the seller. Qatar exchange launching its securities lending and borrowing facilities also was a factor in Qatar’s upgrade. Robust market participation and ease of entry into the market also weighed in Qatar’s favor.
Several large companies have enhanced the foreign ownership limit to encourage additional foreign investment. This also attracted the attention of S&P to upgrade Qatar to emerging market classification.
Rationale for UAE’s upgrade
S&P feels UAE has met all quantitative criteria for qualifying as an emerging market. UAE’s all three exchanges now use DVP settlement, with DFM and ADX having started to implement the new procedures of buyer cash settlement for trades effective May 5, 2013. The mechanism would help the buying investor to get cash in the unlikely event of securities not available for delivery to him.
UAE’s Securities and Commodities Authority board approved a market-maker regulation along with relevant regulations for securities lending and borrowing, short selling and liquidity in October 2012. These initiatives have facilitated UAE’s upgrade. Besides, UAE’s current foreign ownership limit at 49% is in line with a few of the emerging market classified countries.
Rationale for Greece’s downgrade
S&P feels the Greek equity market lags behind the advancements in market practices typical of comparable countries. Greece also experienced dramatic and consistent reduction in market size over the past few years. With restriction on securities borrowing and lending facilities and lack of ease in transferability, S&P believes classifying Greece with emerging market status is justified at this time.
Other countries’ classification
Despite South Korea lacking ease of currency lending, S&P feels retaining South Korea as a developed market would be more appropriate. Similarly, despite having limits on currency convertibility, S&P feels Taiwan should be retained as an emerging market.
S&P retained emerging market status for Egypt despite a general concern expressed about the country’s foreign exchange repatriation arising out of recent political turmoil within the country. Similarly, S&P retained emerging market classification to Morocco despite concerns over the ongoing decline in liquidity.
Lastly, S&P retained frontier market classification to Bahrain, Kuwait and Oman, while Saudi Arabia will remain classified as a standalone market.