Bright start for Qatar’s stock market

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Following a year of modest growth, activity on the Qatar Exchange (QE) shifted up a gear in early 2014, with its benchmark index, the QE Index, exceeding 10,000 points for the first time in more than four years.

The QE Index reached 11,900 points on February 24, growing closer to its pre-financial crisis high of 12,627 in June of 2008. The index includes the 20 largest and most liquid stocks traded on the exchange, such as Qatar National Bank (QNB), Industries Qatar (IQ) and Ooredoo.

This followed a solid performance in 2013. According to data from the exchange, the QE Index rose steadily over the 12-month period, bar a slight dip in September, to finish the year up 24% at 10,380. Qatar’s performance placed it roughly in the middle of the GCC stock markets, ahead of Bahrain (17%) and Oman (19%), but behind Kuwait (27%), Saudi Arabia (26%), Abu Dhabi (63%) and Dubai (108%).

Market capitalisation was similarly up, growing nearly 21% to reach QR555bn ($152bn) by December 31.

The All Share Transportation Index led sectoral indices in terms of total returns, ending 2013 up 38.7%. Transport was followed by telecoms (36.5%), industrials (33.2%), and consumer goods and services (27.4%).

The banking and financial sector saw the most trading activity, accounting for one third of the total value traded, while the industrial and real estate sectors accounted for 25% and 15% of traded value, respectively.

Push for new listings

Improved performance is expected to pave the way for new initial public offerings (IPOs), which have slowed since 2008. On December 31, 2013, Mesaieed Petrochemical Holding, a subsidiary of state-owned Qatar Petroleum, announced the QE’s first IPO in four years. The company issued 25.725% of its share capital and raised a total of QR3.2bn ($876.5m). Although limited to Qatari nationals, the offering was five times oversubscribed, suggesting strong demand for additional IPOs throughout 2014.

In a separate development, the QE and Enterprise Qatar, a state-run support centre for small and medium-sized enterprises (SMEs), signed a deal in February to develop a subsidy programme that will pay for a percentage of listing costs for smaller businesses. The two entities are combining their efforts to help several companies already approved for the programme to go public in the near future. SME development forms an integral part of the government’s wider push to give the private sector a greater role in the overall economy.

Impact of upgrade

Alongside its steady growth, Qatar’s bourse is expected to benefit from its upgrade from frontier to emerging market status by MSCI, set to come into effect this May. Abdulaziz Khashabi, the head of QNB Financial Services, told OBG that Qatar should see additional capital inflows of between $500m and $750m as a result of the change.

Khashabi added that the upgrade is a “long-term positive influence” for the market, as listed companies look to improve their communications with potential international investors. “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,” he said.

The status upgrade had been expected for some time, facilitated in part by Qatar’s move to introduce an enhanced clearing and settlement process, as well as progress in terms of easing the limit on foreign ownership, which is currently set at 25% of free floating, non-government-held shares. Several listed companies, including the Commercial Bank of Qatar and Qatar Islamic Bank, have already requested that the method of calculating the 25% be shifted to total market capitalisation, rather than the free float portion.

While emerging market status will almost surely attract more capital to the country, Qatar nonetheless faces strong competition from its GCC neighbours. However, investor confidence should be buoyed further by the significant government spend planned in the run-up to the FIFA 2022 World Cup and indications of respectable year-end earnings.

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