The third-largest market in the GCC, Qatar will be upgraded to the MSCI Emerging Markets Index from the MSCI Frontier Markets Index in May 2014. This is likely to result in additional inflows estimated at $500m-750m as funds which track the index are obliged to take positions in the Qatari market. As of November 2013, many active funds had taken the lead, with net foreign investments reaching circa $1bn, versus an outflow of around $700m in 2012. Subsequent to the MSCI upgrade announcement, S&P Dow Jones announced a similar upgrade, adding Qatar to its Emerging Markets Index. After a process of over five years, the Qatari market met the strict technical and quantitative requirements of an upgrade to the Emerging Markets Index. Several large companies have increased their foreign ownership limits to encourage further foreign investments, meeting one of the principal criteria for inclusion in the index. Most of the large listed companies in Qatar previously limited foreign ownership to 25% of free-floating, non-government-held shares. Prior to the upgrade both Commercial Bank of Qatar and Qatar Islamic Bank requested up to 25% of their market capitalisation be available to foreign investors. In the third quarter of 2013, Industries Qatar raised its foreign ownership limits, and several other listed companies have expressed interest in amending current limits set at 25% of their free float shares to 25% of their full capital. Further, the Qatar Exchange (QE) implemented the delivery versus payment settlement system in 2011, and enhanced it twice in 2012 to ensure full protection of investors’ assets, another MSCI requirement. In our view, the upgrade to the MSCI Emerging Markets Index is a long-term positive influence for the domestic market. We believe that increased foreign interest will be a motivating factor for firms to elevate and enhance their investor relations function with the aim of becoming more open with all stakeholders. Currently, the blue-chip index heavyweights like QNB Group, Industries Qatar, Ooredoo and other leading players have dedicated investor relations units that facilitate investor awareness and corporate access. We are particularly interested in this because QNB Financial Services has taken a lead in promoting Qatari equity markets to international investors. In the last few years we have conducted over 100 investor meetings with the senior management of QE-listed companies. There was considerable interest even before the MSCI upgrade, and now an even wider group of investors is looking at Qatar with interest. We will continue to keep them updated by providing related research and analytical reports, and facilitating access to the senior management of Qatari listed companies. In 2013 the QE increased its product offering by listing domestic Tbonds, having begun to successfully offer T-bills in 2012. There are also plans to introduce exchange-traded funds, for which regulations are being formulated.

QNB Group estimates that real GDP rose by 6.5% in 2013, and is forecast to accelerate to 6.8% in 2014. This growth will be driven under the framework proposed by Qatar National Vision 2030 and guided by the National Development Strategy 2011-16. Spending on infrastructure remains a key factor for Qatar to achieve its goals for the 2022 FIFA World Cup and the state’s longterm vision. We are of the view that investors will be upbeat as momentum builds on the implementation of major projects. The Qatari equity market has performed strongly in 2013, up by 24.1% year-to-date as of November 31, 2013, and we expect news concerning major project mobilisations and solid bottom-line results of key companies to bolster returns in 2014. We continue to expect strong public sector spending in 2014, further stimulating growth in the private sector. In terms of earnings growth, we forecast solid aggregate earnings by key Qatari equities in 2014.

We believe the reclassification from frontier markets to emerging markets coupled with Qatar’s strong economic growth, robust corporate profitability and attractive valuations are long-term catalysts for its equity market. Qatar will continue to attract investors seeking superior risk-adjusted returns on their investments.