Qatar progresses with financial market reform

Foreign participation in the Qatar Stock Exchange (QSE) is set to rise on the back of technical reforms that have been implemented in the wake of the exchange’s upgrade to emerging market status.

Legislation was ratified in August last year allowing foreign investors to own up to 49% of listed Qatari companies, up from the previous ceiling of 25%. This has prompted a number of firms listed on the QSE to apply for changes to their shareholding.

In the second quarter, six companies increased their non-Qatari ownership, according to the Qatar Central Securities Depository (QCSD). Four of those were in the financial services sector, including Qatar General Insurance & Reinsurance Company, Qatar Insurance Company, the Commercial Bank of Qatar and Doha Bank. Property developer Ezdan Holding and the diversified trading, property and industrial company, Aamal, also applied for a higher foreign capital ratio.

Additional services

The decision to lift the non-Qatari ownership ceiling is part of a broader programme to raise the profile of the QSE and encourage local and foreign investors. Sheikh Abdulla bin Saoud Al Thani, governor of the Qatar Central Bank, told OBG, “The creation of the QCSD is part of the development plan to advance the state’s overall financial vision and should function as the gateway to investing in Qatar’s capital markets.”

The programme has met with success, as the QCSD – the company that went live in January 2014 to manage the safekeeping, clearing and settlement of securities and other financial instruments listed on the QSE – now has 500,000 active investors and is developing additional services to attract new ones.  

The QCSD is making headway by building on the number of financial instruments available, according to its CEO, Misnad Bin Abdulatif Al Misnad. “New assets are being introduced such as exchange traded funds (ETFs),” he told OBG. “Real estate investment trusts will also be under the jurisdiction of the QCSD once they are introduced, and this process is currently under negotiation.”

Rashid Al Mansoori, CEO of the QSE, echoed this sentiment, telling OBG that in order for the QSE to grow, new products and listings were necessary for expansion. He indicated that two out of three planned ETFs are expected to launch in 2015, both of which are currently awaiting regulatory approval.

Wooing investors

In late March, the QCSD acted on instructions from the regulator to enable citizens of fellow GCC countries to be treated as Qatari Nationals with regard to share holdings of listed Qatari companies. The decision, part of the wider programme of expanding the financial market’s base, means that GCC nationals will be able to enjoy the same rights as Qataris when it comes to investing in the capital markets.

One of the drivers for expansion was Qatar being added to the MSCI Emerging Market Index in May 2014, following a decision by the global index compiler to promote the country’s status to emerging market from frontier market in June the previous year.

Al Mansoori told OBG that the upgrade has attracted $2bn of foreign funds to the bourse and as of July, foreigners represent about 40% of daily trading activities.

The move onto the MSCI’s upgraded index resulted in higher capital inflows to Qatar’s markets and prompted financial news agency Bloomberg to rank the country as the second most promising emerging market for 2015, behind South Korea, earlier this year.

Last year, the successful Mesaieed Petrochemical Holding Company IPO raised some $881m for a 26% stake previously held by Qatar Petroleum – making this the country’s biggest IPO in five years. In 2015, many investors will be watching to see if further offerings are made, with Barwa Bank and Qatar First Bank widely reported to be keen to list.

Competing with Saudi bourse

At the same time, competition in the region is heating up after Saudi Arabia opened up its stock market, the Tadawul, to direct foreign investment in June. As the Middle East’s biggest stock market − with a market value of over $570bn and daily trading volumes of about $2.4bn – the bourse is considered an attractive proposition for investors. However, foreign fund inflows have been slower to emerge than initially expected due to a host of rules and regulations that are taking time to digest.

Despite competition from bourses such as the Tadawul, interest in markets such as that in Qatar will gather momentum, according to Al Mansoori. “The QSE is now the largest emerging market in the region and the second largest market in the MENA region by market capitalisation. These figures indicate the confidence investors have placed in both the QSE and the Qatari economy.”

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