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In Russell’s eyes–UAE has at least one index that thinks it’s ‘Emerging’
With Russell Investments reaffirming the UAE as the only GCC country branded as an Emerging Market, it makes us question how much weight should we really give any of these indexes.
August 2, 2011 3:13 by Precious de Leon
Global fund manager Russell Investments reaffirms its classification of the UAE as an Emerging Market, setting the index apart from MSCI and S&P indices that label the country only as a Frontier Market.
Following the annual reconstitution of its global indices, Russell created a paper to examine the UAE relative to the rest of the countries represented in the Russell Emerging Markets (REM) Index and median indicators from the Russell Frontier Index (RFI).
The Russell Indexes country classification methodology seeks to identify the relative risk of investing in a country by evaluating both macro-level and market-level factors.
Specifically, for this research Russell utilises:
- Two key macro level measures used by Russell Indexes – the EIU country risk score and the World Bank Income Category;
- Market accessibility and operational risk across factors – foreign ownership limits, participation requirements, liquidity, existence of delivery vs. payment, and settlement period; and
- Additional market size and investability measures – GDP, GDP per capita, market capitalisation, market capitalisation/GDP, and market value (float adjusted)/market capitalisation.
- Russell analysis across these factors demonstrates that the UAE should be included in the emerging markets opportunity set.
Although the UAE is currently the only GCC economy to be included in Russell’s Emerging Markets indices, Qatar meets most of the rules-based criteria for the same classification. The principle factor in why Qatar remains a Frontier economy is that regulations in the country stipulate a 25 percent foreign ownership limit on Qatari companies – which limits the investment opportunities, and the likelihood of allocations to Qatari stocks within emerging markets portfolios.
Pascal Duval, President of Russell Investments for Europe, the Middle East and Africa (EMEA) said: “We have examined the UAE market across a variety of factors to determine the merits of its classification as an emerging vs. frontier country. Its relative size and liquidity profiles are significant compared to the Russell Frontier Index. As well as operational infrastructure which is very satisfactory, UAE classification in our Emerging Market Index is not hindered by foreign limitation ownership.”
In order to organise and score each of the countries in the REM, Russell devised a basic scorecard. Each country was given a “score” based on its rank for each factor. The highest score = 21 and the lowest = 0. Of the 22 countries in the REM, based on total score, the UAE ranked 13th. Taiwan and
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