Qatar guarantees stocks FX rate if MSCI sticks to official level

Qatar’s central bank pledged to provide dollars at the official exchange rate to stock investors if index provider MSCI Inc. continues to use that level to calculate its gauge.

“This guarantee should address any concern the MSCI investors might have on their capacity to freely trade the Qatari riyal at official onshore FX rates,” the central bank said, according to an emailed statement from the stock exchange on Tuesday.

MSCI, whose indexes guide the investment of about $11 trillion in assets, is consulting investors on a proposal to use the offshore rate to value the country’s stocks after complaints that a boycott of Qatar by four Arab countries was making access to the official exchange rate difficult. The central bank said last week it “has sufficient foreign reserves that can cover all investors’ requirements.”

Like the majority of neighboring energy-rich Gulf countries, Qatar pegs its currency to the U.S. dollar, and economists say reserves and assets held by its sovereign wealth fund are enough to maintain an exchange rate of 3.64 riyals to the greenback. But the Saudi-led embargo bifurcated Qatar’s currency market, resulting in a gap between the onshore and offshore rates.

Some Qatari banks only provided enough cash for the domestic business, but not for trades deemed speculative, people familiar with the matter said in July. This policy weakened the riyal in offshore markets to a record low of 3.928 to the dollar on Nov. 20. The currency then reversed the slide, gaining more than 5 percent to 3.715 on Tuesday.

Qatar’s benchmark stock measure has dropped more than 25 percent this year, making it the world’s worst performer among indexes tracked by Bloomberg.

MSCI said its new calculations would change index levels and performance, market capitalization, fundamental data, and annualized traded value ratios. The index provider will collect feedback from investors until Dec. 1 and plans to announce a decision, as well as potential implementation dates for changes, by Dec. 5.

Courtesy Bloomberg