Russell’s Global Index has upgraded the UAE from frontier to emerging market status, and S&P Indices is likely to follow suit, Mena FM has learned.

Last week, Russell confirmed that the UAE has become the first GCC country to win emerging market status on the firm’s global index, which is influential among US investors and fund managers. Meanwhile, S&P Indices has begun a consultation period to decide whether the UAE, Qatar and Jordan are ready for an upgrade.

“The consultation period ends on 26 August,” said Charbel Azzi, S&P Indices’ head of client coverage Middle East & Africa. “Once the consultation is done we will meet with the index committee in New York and the announcement will come in early Q1 2012.”

Azzi added that after the announcement has been made, any upgrades would be enacted at the next rebalancing in March. Rival index MSCI is expected to upgrade the UAE, and possibly Qatar, to emerging markets status in December, but they would not appear on the index for another year.

Fund managers in the UAE are anxious for market recognition following a volatile 2011 which has kept many investors at bay. “We’re just looking for any positive catalyst for the market now,” Shuaa Capital’s head of asset management Nadi Bargouti told Mena FM. He added that a reclassification to emerging market status is “very important” for the UAE but a MSCI upgrade will have the most impact on the market, followed by S&P and then Russell.

“A MSCI upgrade is the most important catalyst that the market can have,” says Bargouti. “It’s important to bring some inflows and transparency to the markets.”

Russell began the process of upgrading the UAE last year, although the decision was only made public in August. “We look at all markets every year against our criteria for country development status, which we research under the headings of country risk, market accessibility and operational concerns,” Gareth Parker, senior director of index research, design and development for EMEA at Russell Investments, told Mena FM. “There’s no set programme of upgrades; when a country meets the required criteria, it will be investigated for possible upgrading.”

S&P’s upgrade criteria includes a requirement that the full domestic market capitalisation is in excess of $2.5bn, domestic turnover value is over $1bn and the exchange development ratio is over 5%. The market also has to meet a minimum of three of the following requirements: full domestic market cap of over $15bn; a settlement period of T+3 or better; a sovereign debt rating of BB+ or above; non-occurrence of hyper-inflation; no significant foreign ownership restrictions and a freely traded foreign currency.

“We’re looking forward to an upgrade,” adds Azzi. “It will increase liquidity, it will increase transparency in the region and it will put our region on the radar of global investors."