By Heather Bell

Standard & Poor's just launched a new investable index covering several markets that are seeing a great deal of popularity lately. The S&P GCC 40 covers the markets belonging to the Gulf Cooperation Council, a trade bloc formed by six Persian Gulf states—Bahrain, Qatar, Kuwait, Oman, Saudi Arabia and the United Arab Emirates.

S&P already has several indexes covering the GCC markets, including a few that it has labeled "investable," but the S&P GCC 40 is the first one to be narrow-based.

"The new index has been designed in response to investor demand for access to the largest and most liquid stocks in the region's equity markets," said S&P Index Services Vice President Alka Banerjee. "With a pool of large and easily accessible underlying stocks, the S&P GCC 40 Index will provide a unique way for international investors to take part in the Gulf's growth story."

Interestingly, Saudi Arabia, the largest market of the six, is excluded from the S&P's investable indexes covering the GCC because it is not accessible to foreign investors. However, with oil—the bread and butter of the GCC countries' economies—hitting new highs and the simultaneous efforts of those countries to diversify their economies further, the GCC markets are looking particularly attractive to investors. Despite the fact that they are usually classified as emerging markets because of investability and regulatory issues, the GCC countries' economies are pretty impressive—Qatar, for example, has one of the highest GDPs in the world.

The index takes the top 40 stocks in terms of float-adjusted market capitalization from the S&P/IFCI indexes for Bahrain, Qatar, Kuwait, Oman and the United Arab Emirates. Constituents must have market caps of at least $400 million and a three-month average daily traded value of at least $1 million. Each country can have no more than 12 constituents in the index, which is weighted by modified market capitalization.

The United Arab Emirates has the largest weighting in the index, with 12 components as of May 31 and a total weighting of 34.87%; followed by Kuwait at 30.03% and 12 companies; Qatar at 29.21% and 11 companies; Oman at 5.20% and four companies; and Bahrain at 0.69% and one company. As a whole, the index represents about $135 billion in float-adjusted market capitalization.

Financials, not oil companies, dominate the index, with a 60.64% weighting, and six of the top 10 companies in the index fall into the Financials sector. The Industrials sector is the next largest, with a 15.80% weighting, followed by Telecom Services, at 11.39%. Healthcare, Information Technology, Consumer Discretionary and Consumer Staples have no representation in the index at all.

The S&P GCC 40 was up 10.82% for the first five months of 2008 and 39.22% for the 12-month period. 

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