Foreign ownership limits in Qatar and the UAE, may stand in the way of the Gulf states' gaining emerging market status from index compiler MSCI, an executive said on Wednesday.

Manuel Rensink, regional head of MSCI, said he was 'generally positive' on the prospects of an upgrade.

The two Gulf states, rejected last year for an upgrade, have moved to address key issues cited in MSCI's 2010 review by introducing a Delivery versus Payment (DvP) settlement system.

MSCI also raised the issue of Qatari rules that cap foreign ownership at 25 per cent. 'With UAE in particular, it is more about us receiving feedback on the implementation of DvP. (Foreign ownership limits) is more of a concern in Qatar,' Rensink said.

The UAE typically restricts foreigners from owning not more than 49 per cent of a company's shares while in Qatar, foreigners cannot own more than 25 percent of a company's stock.

Qatar exchange was in talks with authorities to allow foreign ownership in the bourse as it eyes an emerging market tag, its chief executive said in March.

The index complier will announce in June whether it will upgrade Qatar and UAE from the 'frontier markets' category, a move that could open up the countries' bourses to multibillion dollar liquidity and drive index fund investments.

MSCI is currently seeking opinion from institutional investors, asset managers and custodians on the prospects of an upgrade and will conduct its own research before making a decision, a market source familiar with the process said.

Last week, UAE bourses gave brokers and custodians until May 29 to switch to the DvP system, which is a global standard.

That means there is 'not much time' ahead the MSCI review decision in June, Rensink added.

Political unrest in the Middle East has weighed heavily on markets and raised risks, Rensink said. But the UAE and Qatar will benefit as they are seen as a safe haven by investors, he added.

An upgrade to emerging market status would not come into effect until May 2012.-Reuters