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Deutsche Bank Research: Regulatory approval for 49% foreign ownership to proof positive for Qatari stocks

The new directive issued by Qatar’s Emir Sheikh Tamim bin Hamad Al-Thani to raise foreign ownership in Qatari stocks by investors outside the GCC nations to 49% from the current 25% will proof positive for the Qatari stock market in view of Deutsche Bank's research team. The Ministry of Economy and Commerce and the Qatar Financial Markets Authority is to take the necessary steps to enforce this directive, which could be carried out shortly.

"Under the new directive, the proportion of non-Qatari ownership would be computed based on each company’s total capital and not on its tradable shares. This announcement has come just three days ahead of MSCI officially including ten Qatari stocks in their EM index. The news should not have an immediate impact on Qatar’s weight in the EM index, but the representation of Qatar could improve post the next Semi-Annual Review on 6 November", said Aleksandar Stojanowski, Research Analyst at Deutsche Bank.

Historically Qatar has classified investors into two categories – Qatar and non-Qatar. But with the latest announcement for increasing foreign ownership limit to 49% for investors outside GCC, Qatar may move towards a three-tier system where investors are classified as Qatari, GCC and foreign investors. This three-tier system is prevalent in the UAE and Kuwait exchanges already.

MSCI applied an adjustment factor of 0.5 on four Qatari stocks, from the ten that were included in the MSCI EM index, to address for accessibility issues faced by international investors due to potential reduction in foreign room. But with the foreign ownership limit now being raised to 49%, the necessity to include the adjustment factor should go away, as to the Deutsche Bank research team. The four stocks – Qatar National Bank (QNB), Industries Qatar (IQCD), Commercial Bank of Qatar (CBQ) and Doha Bank – could get higher weighting in the MSCI EM index, provided they increase their respective ownership limits and MSCI increases their respective adjustment factor from 0.5 to 1. Overall, should the adjustment factor be removed, the weight of Qatar in MSCI EM index could go up from 0.47% to 0.62%. QNBK and IQCD will be the second and third heaviest Qatari stock in the index after Al Rayan Bank. At the country level, Qatar can out-weight UAE, which currently has a weight of 0.58% in the EM index.

The incremental fund inflows from both active and passive EM funds could improve as the weight of Qatari stocks increases in the EM index. The inflows can be spread out in time and depends on when the individual companies raise their ownership limits and subsequently MSCI increases the respective adjustment factor. In aggregate, between active and passive funds Deutsche Bank research estimate an additional USD 440m could come into the Qatar equity market.