* UAE and Qatar recently upgraded to emerging market status
* Investors still see frontier characteristics in the two
* Both markets rose strongly before upgrade, then fell sharply
* Middle East still carries high political risk, access barriers
LONDON, July 16 (Reuters) – Despite their recent upgrade to the more mainstream emerging market league, United Arab Emirates and Qatar are considered risky enough by many investors that they still treat them like frontier markets. Erratic price moves, difficulties of accessing the market, and deep political risks, alongside strong growth, are common characteristics of frontier markets, which are less developed emerging markets, and the two Middle Eastern countries still tick those boxes for many.
UAE and Qatar stock markets rallied sharply over the past year in anticipation of the upgrade to emerging market status by index compiler MSCI, with the expectation that more risk-averse investors would buy in. But since the upgrade took place at the end of May, the markets have fallen sharply. Problems at Dubai-listed construction firm Arabtec fuelled the market rout. The spiky price action reminded investors why these markets had so recently been categorised as frontier.
“The stocks should not have moved up so much, they should not have dropped so much – we have sat on the sidelines and watched,” said Andrew Brudenell, frontier fund manager at HSBC Global Asset Management. “This is sometimes how frontier markets behave.”
Originally published on www.reuters.com
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