QSE set for ETF debut to boost liquidity

14/04/2014 05:49 AST

Exchange traded funds (ETFs) are set to make their debut next week (April 23) on the Qatar Stock Exchange (QSE) as the bourse enters the MSCI ‘emerging’ market grouping by June, it is learnt.

To begin with, foreign debt-based and general index-based ETFs are set for launch, which will be followed by Islamic-index based ETFs by the end of summer as part of measures by the QSE to enhance the liquidity in the market.

“The plan is to roll out around that time,” highly placed QSE sources told Gulf Times.

The local bourse, in which NYSE Euronext had held a 20% stake till last year, and is still continuing with advisory relations, had been toying with the idea of broadening the investment universe as it aims to be a regional hub for capital markets in the wider Gulf region.

ETFs are mostly (but not exclusively) index-based, open-ended funds that can be bought and sold as quickly and easily as ordinary shares on a stock exchange. They provide investors with the opportunity to access markets that were previously closed to them. The moves to launch ETFs comes in the backdrop of an expected QR3bn to QR5bn foreign funds inflows after the upgrade of the QSE by both Morgan Stanley Composite Index and Standard & Poor’s-Dow Jones, which are to take place by June and September this year respectively.

“ETFs are certainly one of the priority areas for diversifying the product portfolio,” a QSE source said.

Qatar could expect to see total emerging market ETF buying of $175mn, more than four days of average trading volume seen over the past three months, a Bank of America-Merrill Lynch report had earlier said in a report.

As a precursor to introducing ETFs, the QSE as launched new indices in order to create infrastructure to cope with the expected growth. Apart from its 20-stock Qatar Index, the bourse also has Total Return Index, All Share Index and Al Rayan Islamic Index.

The first phase saw reforms in the cash market with an aim to enhancing the liquidity in the market by means of introducing liquidity providers and securities lending and borrowing. Part of the strategy in this phase includes the launch of ETFs. Finding scope for ETFs in Qatar as international investors are interested in bringing money, a top Blackrock official had earlier said a lot of asset managers within the domestic banks are also looking for ETFs for enhancing liquidity and diversifying their product portfolio.

“I think there is the potential to bring more products in this region but we have to make sure that the ecosystem – as regulations, tax system and market making – works,” Deborah Fuhr, managing director of BlackRock, had earlier told Gulf Times.

“There has been a lot of investor attention focused on the Gulf Cooperation Council but the problem is with the heterogeneous nature of individual markets within the region,” a fund manager with one of the leading investment house said.

Gulf Times