MSCI Lifts Weights Of Some Qatar Stocks On Foreign Ownership Reform

Global index compiler MSCI has increased the weightings of three Qatari companies in its emerging market index, citing changes in the way Qatar calculates ceilings on foreign ownership of its firms.

Qatar National Bank (QNB) will have its foreign inclusion factor raised to 0.13 from 0.06, Industries Qatar (IQ) to 0.13 from 0.06, and Qatar Islamic Bank to 0.25 from 0.21, according to an MSCI statement sent to its clients last week and seen by Reuters.

The changes, effective at the end of this month, will raise Qatar’s total weight in the benchmark index to 0.59 per cent from 0.47 per cent, investment bank EFG Hermes estimated, basing its calculation on data from MSCI.

“Given this new development the new weight for Qatar in the MSCI EM Index will rise…The resulting passive inflows will be $100 million, mainly into QNB and IQ,” EFG Hermes said, referring to “passive funds” which automatically track the benchmark.

Qatar, along with the United Arab Emirates, was added to MSCI’s emerging market index in May this year but limits were applied to its weighting because companies maintain ceilings on combined foreign ownership.

Qatar has said ceilings will now be calculated as proportions of total shares outstanding, not as proportions of freely floating shares; this gives foreign investors more room to raise their stakes. MSCI’s adjustment of the weightings this month was a response to that reform.

When it upgraded Qatar and the UAE in May, MSCI also applied an “adjustment factor” of 0.5 to stocks in both countries, citing “accessibility issues to international institutional investors”.

In its statement this month, MSCI repeated that it might consider at a November review whether to raise Qatar’s adjustment factor to 1. EFG Hermes said it expected this to happen in November, which would raise the country’s weight to 0.8 per cent in the emerging market index and attract an additional $185 million of passive funds.

Early this month, Qatar’s emir issued a law providing for foreign investors to own up to 49 per cent of listed Qatari companies; currently, ceilings are usually no more than 25 per cent. Most companies have yet to implement the new regulation.

With MSCI’s latest decision, Qatar is the biggest Middle Eastern market in MSCI’s emerging market index, followed by the UAE at 0.54 per cent and Egypt at 0.22 per cent, according to EFG Hermes.

MSCI also announced last week that another Qatari stock, Mesaieed Petrochemical, would be included in its All-Country World Index. But it cancelled that decision a few hours later, citing “additional information” about individual onwership limits for the company.