After a banner year in 2014, Qatar’s capital markets endured a period of volatility in 2015. The Qatar Stock Exchange (QSE) ended 2015 down around 15% on the previous year, according to data from the exchange. Market participants and observers alike attributed the drop to fluctuating investor sentiment linked to the continued decline of energy prices, contracting government spending and tightening banking sector liquidity across the GCC region and further afield. Despite these and other issues, in 2015 and 2016 thus far Qatar’s capital market has developed rapidly, with the QSE rolling out new products, upgrading trading tools and laying the groundwork for future growth across a range of market segments.
These efforts were rewarded in September 2015, when the global index provider FTSE Russell announced that the QSE was to be upgraded from frontier to secondary emerging market status, in what was widely taken to be an endorsement of Qatar’s strong economic potential, even during a challenging period. The FTSE promotion comes just 16 months after the influential Morgan Stanley Capital International (MSCI) upgraded the QSE to emerging market status in May 2014. Given the bourse’s rising reputation both in the region and around the world, most local players are optimistic about the future. “The recent volatility in the market is about investor sentiment,” Saugata Sarkar, the head of research at Qatar National Bank Financial Services (QNBFS), a brokerage operated by QNB, the nation’s largest bank, told OBG in November 2015. “In fact, the market is fundamentally very strong.”
The QSE’s resiliency can be attributed in large part to the bourse’s management, the Qatar Financial Markets Authority (QFMA) and the Qatar Central Bank (QCB), the latter two of which are responsible for regulating the market. The QSE, for its part, has pushed for continued expansion and improvement in recent years, despite the challenging economic situation. “We are introducing a range of products and continue to develop the exchange to make it more attractive for all interested stakeholders and investors,” Rashid Ali Al Mansoori, CEO of the QSE, told OBG. “Margin trading is in the final stages of approval with the QFMA, and we expect it to have a positive impact on the market. We also have three exchange-traded funds (ETFs) in the pipeline, and listing rules for real estate investment trusts (REITs) have been approved, with one REIT listing currently under way.”
The bourse was upgraded to international technological standards after 2009, when NYSE Euronext, a US-based financial services conglomerate, acquired 20% of the Doha Securities Market (DSM) – which was subsequently renamed the QSE. The acquisition and rebranding took place in the wake of the 2007-08 international financial downturn, which resulted in stock exchanges throughout the Gulf region shedding value. The QSE fared relatively well during this period, losing around 28% of its value in 2008, compared to more than 50% in some nearby markets. The involvement of NYSE had a positive impact on the market, however, and from 2009 onwards it grew substantially, albeit from a lower base than before the crisis.
Oversight & Legislation
Under the Qatar Central Bank (QCB) Law, formally known as Law No. 13 of 2012, the state ruled that all of the country’s financial sectors – including capital markets, banking, insurance and Islamic financial services – were to be additionally overseen by the central bank. The law named the QCB as the formal entity in charge of regulating all other financial authorities, namely the QFMA in the case of capital markets. This shift has been implemented in stages across different sectors over the past four years. In the same period the QFMA’s efforts to ensure that the QSE operates with a high degree of efficiency and transparency have been widely lauded in the Gulf region. The regulator has taken an aggressive approach to upgrading market technology and trading facilities. Recent efforts on the QSE’s part to introduce new products to the bourse – including REITs, ETFs and corporate bonds, among others – have moved forward in conjunction with the QFMA (see analysis).
In 2014 and 2015 the QFMA approved margin trading and rights issues, both of which were expected to help generate liquidity and increase trading volumes on the QSE. The regulator also recently approved REITs (see analysis), while approval by the authority on corporate bond trading and ETFs is currently pending, and expected by the end of 2016. Additionally, over the past decade the regulator has overseen a raft of legislation aimed at opening up the QSE to foreign participation. Under Law No. 33 of 2005, non-Qataris were allowed to invest in the country’s capital market for the first time.
More recently, the state introduced Law No. 9 of 2014, which increased the market’s foreign ownership limit from 25% to 49% for listed Qatari companies. The legislation also provides for raising this percentage further with approval from the Cabinet. According to the law, all GCC nationals will also be treated as Qatari citizens in the ownership of listed companies. In part as a result of this law, following the 2014 announcement that MSCI had upgraded Qatar to emerging market status, more than $2bn in foreign funds poured into the QSE.
Also in 2014 the QSE spun off the Qatar Central Securities Depository (QCSD) as an independent entity. Established in 1997 to handle depository, settlement and clearing of listed securities on the bourse, the QCSD operated as a department of the QSE until the latest shift. “The QCSD is meant to function as the gateway to Qatar’s capital markets,” the newly independent company’s CEO, Misnad bin Abdullatif Al Misnad, told OBG. “In order to trade equities, bonds or Treasury bills [T-bills] you must have a QCSD account.”
As of May 2016 the number of traded companies on the QSE was 44, and the exchange boasted a market capitalisation of QR532.4bn ($146.1bn). Since 2012 the 44 listed companies on the QSE have been organised into seven categories, namely banking and financial services, industrial activities, transport, real estate, insurance, telecommunications, and consumer goods and services. Prior to the 2012 sector expansion, the bourse was divided into just banking and financial services, insurance, industrial activities and services. This change reflects the steady deepening of the market over the past decade, particularly since 2009-10. The QSE’s management has also worked to boost the market’s foreign ties, mostly recently in August 2015 by signing a memorandum of understanding with Turkey’s Borsa Istanbul in an effort to boost economic ties and cooperation between the two countries.
Various indices track the QSE’s performance. The flagship QSE Index, which has been operating in some form or another since the early DSM period, tracks the performance of the top-20 listed companies, as measured by a scoring procedure that takes into account market capitalisation and daily trading activity. Under Law No. 8 of 2012, the QSE introduced a number of new measures of capital market performance. The QSE All Share Index, for example, bundles together all listed firms with a market share of 1% or more, while the QSE Total Return Index measures the market’s price performance. Additionally, in 2012 the QSE launched seven new sectoral indices, which track all listed companies in each individual market segment. In early 2013, meanwhile, the QSE launched the Al Rayan Islamic Index, which was developed in conjunction with Al Rayan Investment, the investment arm of the Doha-based Islamic bank Masraf Al Rayan. The index tracks all companies that are deemed by Al Rayan to be sharia-compliant.
In 2014 the QSE announced that it was in the process of setting up a new exchange, which would operate as a subsidiary to the main bourse, with the objective of attracting small and medium-sized enterprises (SMEs) to the market. Dubbed the QSE Venture Market, the exchange is expected to see its first entrants before the end of 2016. With considerably easier listing requirements than the main QSE in terms of capital, reporting and oversight the new market is widely expected to serve as a vital source of financing for SMEs, particularly in the current climate of tightening liquidity and, consequently, lending practices. Eventually QSE Venture could serve as a reliable springboard to the main exchange.
Most of the investors registered with the QCSD – and as such permitted to trade on the bourse – are nationals. Indeed, Qatari individuals and institutions make up more than 92% of all QSE investors. Nonetheless, foreign traders – and particularly foreign institutional investment firms – account for an outsized percentage of trading activity. In 2015, for example, foreign investors were responsible for around 40% of all buy and sell orders over the course of the year. Of foreign investors, non-Qatari investment institutions accounted for around 26% of the total, while foreign individuals made up the remaining 14%. Qataris, meanwhile, accounted for the majority of bourse activity in 2015. Some 40-41% of all trading activity was conducted by individual Qatari investors, while national institutional investors accounted for around 19% of the total, as per QSE data.
The QSE Index closed out 2015 at 10,429.36 points, down just over 15% from 12,285.78 at the end of 2014, according to data from the bourse. This comes after the market posted growth of more than 18% in 2014 and 24% in 2013. The QSE Index’s end-2013 close of 10,379.59 points was the first time it had surpassed 10,000 points since 2008, and this figure is down slightly on the end-2015 metric. Similarly, both the QSE All Share Index and the QSE Total Return Index ended 2015 down nearly 12% from the previous year, after posting growth of around 22% and 24%, respectively, in 2014. The Al Rayan Islamic Index, meanwhile, ended 2015 down just 6% over the course of the year, after posting growth of 35% in 2014 and 22% in 2013. The slower decline of sharia-compliant stocks is widely regarded as a reflection of the strength of Qatar’s Islamic sector.
The strongest-performing market segment on the QSE in 2015 was transport, which grew by around 5% over the course of the year, according to QSE data. This was followed by real estate, which was up 3.9% in the same period, and insurance, which increased by 1.9%, as measured by the respective sectoral all-share indices for these industries. The remaining four sectors of the market lost value over 2015, with the banking and financial services index dropping off by 12.4%, the consumer goods and services index down by 13.1%, the industrial index declining by 21.1% and the telecoms index – which is made up of just two companies, Ooredoo and Vodafone Qatar – down by 33.6% in total. These figures follow on from two years of growth in all seven sectors.
In April 2016 the QSE recorded 110,726 transactions in total, which involved 216.7m shares traded with a total value of QR7.25bn ($2bn). These figures compare to 122,992 transactions, 268.6m shares traded worth QR9.08bn ($2.5bn) in March 2016 and, in April 2015, 108,714 transactions involving 199.9m traded shares valued at QR8.4bn ($2.3bn) in total. As suggested by these figures, in April 2016 trading activity on the QSE decreased over the previous month in terms of both volume and value. However, the number of transactions and traded shares were up in comparison to April 2015.
With 13 listed companies, the banking sector is the largest and one of the most actively traded markets on the QSE. In 2015 the sector accounted for around 32% of total trading value and 22% of total trading volume for the year. Real estate, which has only four listed firms, was also popular in 2015, with 23% of total trades by value and more than 36% by volume. The telecoms and industrial sectors, with two and nine listed companies, respectively, round out the top-four traded sectors on the QSE in 2015.
In addition to equities, which account for the majority of the activity on the bourse, the QSE also handles government bonds, T-bills and, since mid-2015, rights issues, which involve shareholders trading discounted newly issued shares of a listed firm (see analysis). Over the course of the coming year – assuming all goes according to plan – the QFMA is expected to approve ETFs and corporate bond trading on the market as well.
The QSE’s performance in 2015 was in line with other bourses throughout the Gulf region. According to data compiled by Kuwait’s government-owned KIPCO Asset Management Company (KAMCO), in 2015 headline indices at all seven GCC-based bourses lost value, with Saudi Arabia’s Tadawul All-Share index down 17.1% and the Dubai Financial Market’s General Index down by 16.5%. This was followed by the QSE Index’s 15.1% loss; 14.8% declines at both Bahrain’s All-Share Index and Oman’s Muscat Securities Market 30 Index; and additional losses ranging from 13% on the Kuwait Stock Exchange’s Weighted Index to 4.9% on the Abu Dhabi Exchange’s General Index. In total GCC markets lost 13.4% – equal to around $138bn – in market capitalisation in 2015, after a regional gain of 7.5% – or $73bn – in 2014, according to KAMCO data. As of the end of 2015 the QSE was the region’s second-largest bourse by market capitalisation, after Tadawul.
In 2015, nine of the 43 traded companies on the QSE gained value, while the remaining 34 lost value, according to QSE data. Top performers included the Qatari German Medical Company, which saw its value increase by more than 35% over the course of the year; Qatar Electricity and Water Company, which rose in value by 15%; Al Meera Consumer Goods, which was up 10% by the end of the year; and Ezdan Holding, which grew by around 7%.
In April 2016 the most actively traded stocks on the QSE included Widam Food Company, which accounted for 7.11% of total market trading value for the month; Qatari Investors Group with 7.1%; the sharia-compliant financial institution Masraf Al Rayan (MAR) with 6.68%; oil services firm Gulf International Services (GIS) with 6.68%; and National Leasing with 6.21%. In total, these five companies accounted for more than 33% of the exchange’s total trading activity by volume in April 2016. GIS and MAR have both regularly been among the top five most actively traded stocks on the QSE over the past few years.
“Despite the liquidity tightening perception in the banking sector, in connection with the falling oil prices, local markets have performed relatively well, especially the stock exchange,” Farah Ahmed Hersi, executive manager of the economics and research section at MAR’s Treasury Department, told OBG. “The falling oil price is a challenge, but the government strongly supports the local economy, so we see a promising future.” Indeed, the Qatari economy remains the fastest-growing in the GCC, with an expected growth rate of 4.3% for 2016, according to the Ministry of Development Planning and Statistics.
Like most capital markets throughout the Middle East, Qatar has seen a slowing initial public offering (IPO) market in recent years, with no new listings in 2015. The most recent public sector IPO in Qatar took place in 2014, when Mesaieed Petrochemical Holding Company, a subsidiary of the government-owned energy giant Qatar Petroleum, sold around a quarter of its stock in a fully subscribed listing. The sale was limited almost entirely to individual investors – with the notable exception of the public sector entities the General Retirement and Social Insurance Authority and Qatar Foundation.
On April 27, 2016 Qatar First Bank (QFB), a sharia-compliant institution that specialises in private equity and corporate banking services, listed on the country’s stock exchange. According to the QSE, the opening price on the first day of trading was QR16.70 ($4.58) and the upper limit reached QR16.80 ($4.61). The last traded price and the closing price was QR13.85 ($3.80). The number of executed transactions amounted to 3594, totalling 14.18m traded shares for a total value of QR214.58m ($58.9m). QFB is the first entity registered at the Qatar Financial Centre (QFC) to list on the QSE. With interest from numerous other QFC-registered entities to list on the bourse, the successful listing of QFB should help to pave the way for future listings.
A largely untapped source of potential listings is Qatar’s numerous family-owned conglomerates, which are active across a range of economic sectors. Given the current liquidity tightening in the banking sector, these firms could make their way to the QSE for financing, though many of them are hesitant to do so for a variety of reasons. “Over the last six years we have been waiting for family-owned businesses and other private companies to get listed at the QSE, but they are shying away,” the QSE’s Al Mansoori told OBG. “Such business owners are apprehensive about disclosure and losing control over their companies.”
As of early 2016 a handful of firms had either announced plans to list, though hard-and-fast time-lines had yet to be established for these proceedings. In February 2016 UrbaCon Trading and Contracting – the construction firm that is currently building the Mall of Qatar – announced that it was considering a $1bn IPO on the QSE before the end of the year or in early 2017. Other potential listings include Barwa Bank and a handful of additional Qatar Petroleum subsidiaries. Khalifa Khalid Al Rabban, chairman of Al Rabban Holding, the owner of Rayyan Mineral Water Company, also told OBG that Rayyan Water is expected to list on the QSE. This will make it the first fast-moving consumer goods brand to be listed and should help the Qatari brand to expand regionally. The listing is currently being discussed at the request of the government, and plans are in place to list by 2017 if the timing is appropriate in line with the current state of the economy.
Qatar’s capital market, like the regional economy at large, is under pressure as a result of the low price of oil and related trends. Nonetheless, the country is well situated to pull through any extended period of volatility. Qatar’s non-oil economy has grown considerably in recent years, and continued investments by the government in infrastructure and other industries bode well for future expansion in this area. “The market is currently responding directly to general economic conditions, which is what markets around the world do all the time,” said the QNBF’s Sarkar. “Longer term, however, it is well positioned to weather the current slow period. Most listed firms are real companies, with real value, prudent management and international-standard corporate governance, as required by the regulator.”
As such, and taking into account the QSE’s and the QFMA’s ongoing upgrade and reform efforts, most listed firms expect positive results in 2016. Dramatic market growth is not expected over the course of the year, but with a raft of new products expected to be launched in the near future and the potential for a handful of new IPOs, prospects are looking up.
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