By Pratap John/Chief Business Reporter

Qatar’s plans to list four QP subsidiary companies on the Qatar Exchange with IPOs worth about QR50bn can prove to be an important “equity-financing vehicle” for companies with direct exposure to World Expo 2020 in Dubai and FIFA World Cup 2022 in Doha, a new report has shown.
According to Beltone Financial, the MSCI upgrade of Qatar is “positive as it holds the prospect of greater foreign portfolio investment inflows in the near term.”
In June this year, MSCI announced its decision to upgrade Qatar and the UAE from frontier-market to emerging-market status. The reclassification will take effect in May 2014, with Qatar having a weight of 0.49% and the UAE 0.46% in the MSCI EM index, based on provisional estimates released by the global index provider.
Hopes of an MSCI upgrade and the entry of foreign investors has already helped boost equities in Qatar and the UAE this year, Beltone said in a report.
The anticipated transition to MSCI will provide access to emerging-market funds with a net asset value of around $950bn, based on IMF data, the report said.
But while industry estimates on the size of foreign fund inflows as a result of the upgrade have varied between $300mn and $850mn, Beltone believes it is “premature” to quantify the immediate effects, which are subject to a number of factors.
First, global monetary policy direction is an important driver of capital flows and the gradual exit from accommodative conditions in the US or other developed markets could trigger portfolio outflows from emerging markets.
Second, geopolitical tensions are another major source of risk and volatility in financial markets.
Third, the size of portfolio inflows will largely depend on the extent to which foreign ownership limits are eased for listed companies.
Finally, policy implementation will likely be gradual such that the dollar peg is maintained and domestic liquidity is not hampered by short-term speculative inflows.
“Our trading sources also indicate that additional foreign inflows may well be limited with many global emerging market funds already having some off-benchmark exposure to GCC equity markets.
“We are nevertheless encouraged by the longer-term prospects and higher institutional involvement in the GCC. Increased scope for foreign participation should enhance its depth and liquidity and support private-sector development, with a potential increase in initial public offerings (IPOs). It also signals a strong sense of policy commitment to financial reforms and liberalisation.”
Both Qatar and the UAE have already made considerable efforts to gain access to emerging markets, including revamping the trade settlement system and raising foreign-ownership limits for some listed companies.
Beltone has also seen GCC governments push for increased private-sector participation in capital markets with large state-owned conglomerates offloading stakes through IPOs.
It remains to be seen whether Saudi Arabia will grant foreign investors greater access to the local stock market. Already, some positive indications are seen, including management changes in the Capital Market Authority (CMA) and the switch of the two-day weekend from Thursday and Friday to Friday and Saturday, which has aligned the Saudi market with the rest of the GCC.
Aside from regulatory reforms to enhance domestic liquidity, the CMA amended listing rules in January 2012 to allow cross-listings from GCC markets.
“We believe this brings the Saudi market a step closer to gradually open up to foreign investment,” Beltone said.