DOHA  - Qatar's stock exchange is developing two new Exchange Traded Funds, part of efforts by the Middle East's strongest performing stock market in 2018 to boost foreign investment, CEO Rashid al-Mansoori said.

Qatar has been on a drive to attract capital from new sources since Saudi Arabia, the United Emirates, Bahrain, and Egypt imposed an economic boycott over what they allege is Qatar's support of terrorism, which Doha denies.

Companies on Qatar's exchange have since increased foreign ownership limits to 49%, most of which had previously been set at 25%, drawing a flood of cash that helped to boost the main index .QSI by more than 20% last year.

The index has since cooled, falling about 5 percent since the start of the year on profit taking after last year's rally and amid international political tensions.

The higher ownership limits are just one of the ways the tiny Gulf state has tried to attract capital from overseas. The new liberalised investment code allows 100% foreign ownership of projects and new areas of real estate have been opened up for foreign buyers.

This month, six more companies said they would allow up to 49% foreign ownership, making them the latest batch of the exchange's 46 companies to do so, Mansoori said from his Doha office.

"Now the minimum will be 49% for all Qatari companies ... this will attract more liquidity and more room for foreign investors to invest," said Mansoori.

Foreigners hold about 11 percent of the companies listed on the exchange but make up about 30-40% of daily turnover, Mansoori said.

Mansoori said the exchange was looking to launch the two new ETFs, one focused on gold and another for sharia-compliant assets outside of Qatar, over the next year.

"They are in a very good stage now and a very good position," he said, without providing further detail.

Qatar launched its first two ETFs last year, one tracking the overall exchange and a second for local sharia compliant stocks.

Mansoori said the addition of three Qatari companies to the MSCI Emerging Market Index from May 28 will draw an estimated $412 million in passive investment on the first day. For the companies joining the index this means investments flow automatically from passive funds with set allocations for Qatar's stocks.

The three companies to join the MSCI index are Mesaieed Petrochemical, Qatar Fuel and Qatar Aluminum Manufacturing Company.

A ten-to-one stock split for companies on the exchange will be phased in from June 9, aiming to encourage small investors to invest to increase liquidity.

Local dairy producer Baladna is expected to hold its initial public offering by the end of 2019, only the third company to do so since the boycott of Qatar began in 2017.

Mansoori hopes others will follow suit, with talks taking place for listings in areas like pharmaceuticals, education, and shipping.

"I want more than this. I want four to seven IPOs per year, at least," he said.

(Reporting by Eric Knecht. Editing by Jane Merriman) ((; +20 2 2394 8102; Reuters Messaging: