Qatar stocks could attract up to $3.5 bln on free float plan

Qatar’s equity market could attract as much as $3.5 billion of passive flows if the Gulf state proceeds with a plan to combine all of the local stocks held by its sovereign wealth and pension funds, according to Dubai-based Arqaam Capital Ltd.

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The $450 billion Qatar Investment Authority and the General Retirement and Social Insurance Authority are examining a proposal to consolidate their local holdings worth up to $3 billion under a separate entity in a bid to draw more foreign investor interest and deepen markets, Bloomberg News reported on Tuesday.

The new entity would hire third-party funds to actively manage and trade the shares, effectively boosting activity in the overall market, according to people with knowledge of the plans who asked not to be identified because the information isn’t public.

Such a move could attract an estimated $2.46 billion inflows from MSCI trackers and $1 billion inflows from FTSE trackers in a “blue sky scenario where both entities pooled all of their stakes to free float, Arqaam analysts Jaap Meijer and Elia Al Chaar, wrote in a note on Wednesday.

If the QIA added 5 percent of its local stocks to free float, the exchange could draw $587 million of inflows in a base case scenario, they said. Qatar National Bank QPSC, Industries Qatar QSC and Qatar Islamic Bank SAQ are likely be the biggest beneficiaries, they said.

Qatar’s benchmark QE Index rose as much as 1.7 percent on Wednesday, led by gains in Qatar National Bank, Qatar Islamic Bank, Qatar International Islamic Bank and Commercial Bank of Qatar — all of which are part of the MSCI Qatar Index.

EFG Hermes

Ahmed Difrawy, head of data and index research at EFG Hermes, said Qatari stocks could draw about $1.8 billion of passive inflows from the MSCI and FTSE indexes if the QIA sells 20 percent of its local holdings. Qatar Islamic Bank, QNB, Ooredoo, Masraf Al Rayan and Commercial Bank are all expected to benefit, he wrote in a note on Wednesday.

Qatar is considering the plan on the hopes that more trading would raise investment returns, reduce costs and help with diversification, the people said. Any change may take place by the end of the year, but a final decision hasn’t been made.

If the country decides to proceed, it would be following in the footsteps of Saudi Arabia, which increased overall free float in 2021 after combining $29 billion of local and foreign stocks from Public Pension Agency and the General Organization of Social Insurance.

As a result of that change and a stake sale by the Kingdom’s sovereign wealth fund, Saudi Arabia received at least $815 million in flows from passive funds, according to an estimate from EFG-Hermes.

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