The United Arab Emirates and Qatar are small, oil rich countries with gleaming skyscrapers and fast growing tourism industries. But these two Middle Eastern nations are about to get a much needed boost to their emerging economies and stock exchanges.

These countries will soon have their status changed by MSCI from “frontier markets”, which are usually avoided by conservative investors because of their perceived riskiness, to “emerging markets”. This shift will put the United Arab Emirates and Qatar in the same category as countries such as India and China.

 

What’s the Benefit of Being an “Emerging Market”?

When the MSCI, a U.S. based organization that creates indexes and classifications of countries and their stocks all over the world, changes a nation’s status between the emerging market and frontier market classification, it is similar to a property agent describing a neighborhood as “up-and-coming”  and is sure to attract capital. Institutional investors who hold funds which track the MSCI Emerging Markets index are also likely to hold more stocks from the UAE and Qatar in the near future.

“There’s this anticipation that more people will be interested in these stocks,” said Patricia Oey, a senior fund analyst at Morningstar.

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Many people recognize the skylines of the UAE and Qatar; however, their stock markets and companies are also about to become familiar.

Middle Eastern Growth

Between the years of 2008 and 2012, Qatar’s GDP grew an astonishing 86%, far surpassing that of even China and bolting past other frontier markets such as Cambodia and Kenya. The UAE grew more modestly during that same time, although still over two times that of the United States.

In addition, stock markets in both the UAE and Qatar jumped after the news of these two country’s inclusion into the MSCI Emerging Markets Index reached investors in 2013. The Qatar Exchange was up more than 44% last year and the Dubai Financial Market General Index more than doubled. Compare that to a 6.8% decline in the Shanghai Composite Index.

Although investors looking for exposure to emerging markets often focus on bigger names such as China and Brazil, the gains in smaller markets that do not draw as much attention can be far more impressive.

Not Easy Money

Still, those who are eager to jump in and buy stocks in these two nations should be cautious. Remember that the large gains in emerging markets are often due to foreign investors seeking higher returns on their investments. Their money can exit the market as quickly as it entered.

In addition, the economy of most countries in the Middle East are still largely based on oil and The UAE and Qatar are not exceptions. A fall in oil prices could have devastating effects for both nations, as well as the entire region.

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