Qatar is looking to ride out the storm caused by the crash of many of the US's leading financial houses, with its high levels of liquidity, low exposure to the US market and solid investment policies serving to ward off the worst of the crisis.
Qatar has shown a degree of caution in its investment strategy that appears to be serving the country well during the current financial turmoil. On September 23, local media reported that banking officials said Qatar had the lowest exposure to financial institutions in the US of all the Gulf states.
According to a senior official of the Qatar Investment Authority (QIA), international financial markets will remain volatile for at least another year, a factor that will shape the main Qatari investment agency's strategy in the medium term.
"I think it will continue to be a bit choppy for at least the next 12 to 18 months," said Kenneth Shen, head of strategic and private equity at QIA. "Clearly many of the significant shocks may be behind us. But it's not clear at this point whether or not we've turned the corner."
Shen told a conference in Hong Kong that the QIA, which is estimated to have at least $50bn at its disposal, had considered buying into the troubled US banking sector, but had decided against making a move. "From where we stood it was too early from a timing perspective," he said.
A report by the Financial Times of the UK said the QIA had been approached by troubled US firms Goldman Sachs and Morgan Stanley, but had adopted a wait-and- see attitude, at least until the details of any bail-out package from the US government of the country's banking and finance industry became clear.
While waiting to see which way the cards fall, Qatar should be able to maintain its own strong liquidity, thanks to an expected massive jump in export earnings next year. With new projects coming on line to boost liquid natural gas output, Qatar's income from overseas sales is expected to reach nearly $98bn in 2009, double the figure from 2007, according to a report issued on September 22 by the Washington-based Institute of International Finance (IIF).
Qatar's large supply of hydrocarbon resources and projected high oil and gas prices over the next two years will continue to generate large fiscal and current account surpluses, the report said.
"These surpluses will be transformed into high levels of government spending, which, in combination with robust external asset earnings, will continue to drive growth and development," said the IIF study.
While the institute predicted Qatar's imports bill would also rise, much of this spending would be on equipment needed to further increase liquefied natural gas production (LNG), laying the foundation for even higher export growth.
While there have been few alarm bells ringing in Qatar over the global financial crisis, one note of warning was sounded by the Egypt-based investment bank EFG-Hermes. In a report released on September 24, the bank said there was a risk of a property bubble developing in Qatar due to the 50% year-on-year growth in credit in the domestic market.
But in an earlier report issued in mid-September, entitled "Global Turmoil Creates Regional Opportunities", EFG-Hermes had said that the retreat of foreign investors from markets across the Gulf Cooperation Council (GCC) region had opened up an attractive buying situation, with Qatar being well placed to benefit.
With fundamentals remaining strong and third-quarter earnings expected to be robust, the report recommended that investors use the current period to "strongly accumulate" positions. "We expect the UAE and Qatar as most likely to be the primary beneficiaries from a pick-up in the market," it said.
However, there are some predictions that the current tightening of the international credit market will reduce funding availability for new projects in Qatar. David Proctor, CEO of Al Khaliji Bank, says many real estate developments in Qatar have been financed with the help of foreign banks. In the future they will not want or will not be able to provide as much financing for real estate, he wrote in an opinion piece carried by the local press on September 25.
"Investors who have taken losses in their home markets will be reluctant to invest in offshore markets that they know less well," Procter said.
Though credit may become tight, domestic banks and the state are positioned to keep liquidity flowing, insulating Qatar from potentially hard times ahead.