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Avalanche of Cash Expected for Qatar, UAE Stocks


Known for about a year now, Qatar and the United Arab Emirates will soon make their way to the MSCI Emerging Markets Index and the iShares MSCI Emerging Markets ETF (EEM) .

While the two juggernaut Middle East markets will be scant percentages of that index and EEM, the second-largest emerging markets ETF, the promotion is still expected to trigger a wave of cash flowing into Qatari and UAE stocks.

HSBC forecasts $1.5 billion will flow into Qatari and UAE equities, Brendan Conway reports for Barron’s. That number could have been even higher had the two countries been more diligent about boosting foreign ownership levels (FOL).

“While MSCI recognises that both Qatari and Emirati companies are cognisant of the (FOL) levels, it has also highlighted that only a limited number of companies in Qatar had taken steps to increase their FOL levels since the June 2013 upgrade announcement. Of the two markets, Qatar has a lower ratio of the average free-float-adjusted market cap relative to its full market cap of individual stock at 25% compared with 29% for MSCI UAE. Additionally, both markets have lower average free float to full market cap ratios compared with Emerging Market where the average ratio is 55%,” said HSBC in a note obtained by Barron’s.

Investors now have direct ways to play additional upside for Qatari and UAE stocks thanks to the recent debuts of the iShares MSCI Qatar Capped ETF (QAT) and the iShares MSCI UAE Capped ETF (NasdaqGM: UAE) , which debuted on May 1. [Qatar, UAE ETFs Launch]

Critics would say it is too early to deem either fund successful, but it cannot be ignored that the promotion of Qatar and UAE to emerging markets status has bolstered interest in the countries’ equity markets. The two ETFs are just two weeks old and UAE, the ETF, already has $17.6 million in assets under management while QAT has $7.5 million, according to iShares data.

Both ETFs are up more than 3% since coming to market. As is often the case with single-country emerging markets ETFs, QAT and UAE are heavy on the financial services sector with weights of 55.5% and 69.5%, respectively.

In the case of QAT, that may not be such a bad thing because Qatari banks are viewed as among the strongest in the Gulf Cooperation Council. [An ETF for Qatari Banks]

iShares MSCI UAE Capped ETF Sector Weights


Chart Courtesy: iShares

Tom Lydon’s clients own shares of EEM.