Deutsche Asset & Wealth Management, the wealth management arm of Germany’s Deutsche Bank, said it had listed Europe’s first exchange traded fund to cover equities in the Middle East Gulf region, which will include Saudi Arabia.
The fund will track the equity markets of all six Gulf Cooperation Council (GCC) countries with a 65% weighting to Saudi Arabia, and will be listed on the Deutsche Borse.
“The Saudi Arabian stock market has traditionally been difficult for foreign investors to access, so the launch of an index tracker providing exchange-traded exposure to all the GCC countries is a significant step forward,” said Manooj Mistry, head of exchange-traded products at Deutsche AWM.
Called the db x-trackers MSCI GCC Select Index UCITS ETF, the fund will have an all in fee of 0.65% and tracks the MSCI GCC Countries ex Select Securities Index, which excludes a small number of stocks due to restrictions on foreign ownership.
The fund uses a swap-based structure to get around the issue of accessing the underlying Saudi Arabian market which remains largely closed to foreigners. This means the ETF can simply enter a swap to get the returns of the index, with the broker-dealer that provides the swap having to deal with the issue of accessing the underlying market.
The Saudi Arabian Capital Market Authority formally announced last year that it would open its stock market to foreigners in the first half of 2015 after it has reviewed responses to a set of new rules governing foreign investment in listed companies.
The funds launch comes as the oil and gas rich region faces renewed volatility in its key markets and as political turmoil grows on its borders. However, most experts believe the vast reserves held by the region’s governments will allow them to ride out the current falls and may even increase the speed of much-need economic reforms.
According to the latest IMF Regional Economic Outlook for the Middle East capital reserves are sufficiently high enough to avoid deep spending cuts and limit the drag on growth from the collapsing oil price.
Deutsche AWM’s Mistry said the new EFT was being launched in response to some specific client requests for exposure to all the countries in the GCC. “It also fits in with our strategy of offering the widest selection of emerging and frontier market ETFs, so investors have the granularity to meet their investment aims.”
