--MSCI to announce UAE, Qatar upgrade review results on Wednesday

--Expectations mixed on U.A.E.'s chances for an upgrade

--Qatar foreign ownership limits remain a hurdle

--MSCI could extend review period again

By Nikhil Lohade

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--Index compiler MSCI Inc. is due to decide this week whether to upgrade the status of stock markets in the United Arab Emirates and Qatar, a move that would encourage more foreign investment, though some analysts query whether either country has done enough to merit a promotion.

MSCI's market classification review to be announced on Wednesday will assess whether the U.A.E. and Qatar have taken sufficient steps to open their markets to justify being upgraded to emerging market status from their current frontier ranking. At the last review in June, the index compiler postponed a decision by six months saying it needed more time to study the effectiveness of market-opening measures in both countries.

Emad Mostaque, a London-based strategist at Religare Capital Markets, says the U.A.E. has probably done enough to satisfy MSCI and receive the upgrade. But Qatar has shown no signs of changing its 25% limit on foreign ownership in local companies, and so is less likely to move to emerging markets status.

Though MSCI has no prescribed threshold for foreign investment, the U.A.E.'s 49% limit is generally seen as high enough to gain emerging market status, analysts said.

"I think the probability of Qatar getting included is very low," said Dubai-based Kamran Butt, who heads Credit Suisse's Middle East private banking equity research, pointing to recent comments from Qatar that the country doesn't plan to raise foreign ownership limits.

But others are less sanguine about the U.A.E. and think the MSCI will postpone a decision on both markets.

The key sticking points for MSCI in June were the limits imposed by Qatar on foreign ownership, and the need to bed down the "delivery versus payment" settlement mechanism introduced in April by the U.A.E., specifically the way that so-called failed trades are handled.

Under DvP, the delivery of securities is done simultaneously with payment, meaning that neither the buyer nor the seller is exposed to the risk that the other will default, one of the key MSCI requirements for emerging markets status.

EFG Hermes analysts said in a note last week that foreign investment in the U.A.E has fallen so much in recent months that it may be hard to assess how well the DvP system is functioning.

Other analysts said the results of the MSCI review are hard to predict, and the decision may come down to subjective factors, such as the feedback the index compiler receives from large asset managers and other industry participants.

Though the Gulf markets are relative safe havens compared with Egypt and other Middle East countries that have seen their governments toppled during the Arab Spring, turnover has plummeted this year because of regional uncertainties, prompting several brokerages to cut staff or close operations. In October, U.K.-based banking giant HSBC Holdings PLC (HBC) said it will close its U.A.E. retail brokerage business and instead focus on institutional clients.

That leaves many thinking the U.A.E. and Qatar will have to wait a while longer for their MSCI upgrades.

"Given the current global and regional market conditions, I won't be surprised if MSCI delays its decision again to its annual review next year," said Mohammed Ali Yasin, chief investment officer at Abu Dhabi-based CAPM Investments.

-By Nikhil Lohade, Dow Jones Newswires; +9714 446-1694; nikhil.lohade@dowjones.com

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