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ETFs likely to be listed in the Middle East this year

Lucia Dore (Assistant Editor, Business)
Filed on January 17, 2008

DUBAI A number of exchanges in the Middle East are likely to launch exchange-traded funds (ETFs) this year, a senior official at Morgan Stanley said yesterday.

Deborah Fuhr, managing director, investment strategies said that although there are no ETFs listed in the region yet, "I expect ETFs to be launched on a number of exchanges in the region this year," citing Oman and Saudi Arabia as likely candidates. And the Cairo Stock Exchange is "far along the way to listing" ETFs, she said.

"Most exchanges in the region would like ETFs, even Saudi Arabia. The region sees ETFs as an appealing product for the GCC investor as well as other investors in the region," Fuhr said. There is also strong interest from the Dubai International Financial Exchange (DIFX) and the Abu Dhabi Securities Market (ADSM) she added, but said that because they have so many things going on listing ETFs may not be their highest priority.

Local investors are trading ETFs on other exchanges, she said, adding: "They appeal to active and passive investors and will be replicated in the region." She also said that sovereign wealth funds (SWFs) "will often use ETFs as a quick way to get exposure" to new markets and sectors. Since it is the local broker who buys ETFs, investors are not subject to foreign exchange controls, Fuhr explained.

ETFs are open-ended index tracking funds that can be bought and sold at any time. They are managed by asset managers, are bought and sold through brokers, are traded on the exchange like any other stock and are settled like any other share. Fuhr describes them as simple, flexible, transparent, liquid and low cost, with fees lower than that charged for normal funds.

They are a "tool for getting exposure to many different industries", she said, and "some ETFs give leverage exposure". As well as funds giving exposure to different industries there are regional, global and emerging markets funds, mid cap and small cap funds, and fixed income funds, which give exposure to government and corporate credits, among others. Shariah-compliant indices have also been launched in Europe and Malaysia, said Fuhr. According to figures from Morgan Stanley, at the end of December 2007 there were 1,173 ETFs with 1,909 listings globally. The total value of assets under management worldwide stood at $796.48 billion, managed by 75 managers on 41 exchanges around the world. In 2007, the average daily trading volume increased 143.2 per cent to $59.75 billion.

The world's largest and oldest fund, launched 15 years ago, is the SPDR S&P 500 with assets under management worth over $99 billion. But the break-even size of a fund is typically $50 million, said Fuhr. Last year 459 ETFs were launched, she added, with plans to launch 519 ETFs, 81 in Europe, 381 in the US and 57 in the rest of the world.

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