* Passive funds to buy in at the end of May
* EFG Hermes estimates net passive inflows at $500 mln
* Individual stock inflows may greatly exceed average daily
* Earlier gains may limit further upside
* Kuwait inflows likely to be modest
By Olzhas Auyezov
DUBAI, May 15 Stock markets in Dubai, Abu Dhabi
and Qatar will see relatively large one-off inflows of money at
the end of May as funds tracking the MSCI indexes adjust their
positions in line with updated benchmarks.
MSCI will move stocks from the United Arab Emirates and
Qatar to its emerging market index from its frontier market
benchmark at the end of May, meaning they will be tracked by
funds with significantly larger combined assets.
This upgrade will lead Kuwait to account for a larger
proportion of the frontier market index, also warranting some
fresh inflows, although these are likely to be smaller than
those in the UAE and Qatar.
"(Fund tracker) EPFR data show that $72 billion passively
tracks the MSCI Emerging Market Index; this should translate
into passive flows of $445 million into the UAE and $353 million
into Qatar," EFG Hermes analysts Simon Kitchen and Mohamed Al
Hajj said in a note.
"Netting out flows from funds that track the MSCI Frontier
Market 100 Index, total net passive flows will be $286 million
for the UAE and $210 million for Qatar."
VTB Capital estimates passive flows into each of the
countries at about $390 million, without an adjustment for
frontier fund outflows.
IMPACT ON STOCKS MAY VARY
For some stocks, namely DP World, National Bank of
Abu Dhabi and Ooredoo, the expected inflows
will be more than 10 times bigger than the average daily trading
volume, according to the same calculations.
That means purchases by passive funds are likely to
temporarily drive up the value of the stocks due to low
Other analysts say trading - not just by passive funds -
will be initially concentrated in the biggest names because
Qatar and the UAE will represent only 5 percent of MSCI's
emerging market EMEA (Europe, Middle East and Africa) index, and
about 1 percent of the global benchmark.
"At first... we would only expect the 3-5 most liquid names
to directly benefit from the upgrade, volume-wise at least,"
Matthieu Belondrade and Francois Theret, heads of Global
Emerging Equities at Natixis Asset Management, said in a note.
"Once investors get to know these markets better, we could
see second and third tier companies also benefiting from the
upgrade, with a 6 to 12 months lag. Considering how these
markets have performed over the recent period, the upside could
be more limited."
Between June 28, 2013 and April 30, 2014, the MSCI UAE Index
and the MSCI Qatar Index, still under their frontier market
status, have returned 87.8 and 38.7 percent respectively,
according to Natixis.
As the UAE and Qatar leave MSCI's frontier market index,
Kuwait and Nigeria are set to become its two biggest markets and
funds tracking the benchmark will allocate more money there.
NBK Capital estimated in March that Kuwait's weighting in
the frontier index could jump from 18 percentage points to 30 as
However, some analysts say passive inflows into the market
might be limited as MSCI has introduced a 40-percent cap on the
combined weighting of Kuwait and Nigeria in its frontier market
100 index which most passive funds track.
"It wouldn't be substantial," said Mohamed Al Hajj from EFG
Hermes. "And with frontier market you don't have a lot of
passive funds. Their total assets under management are about
(Editing by Matt Smith and Toby Chopra)