WILL QATAR BE THE NEXT IN­VESTORS' PAR­ADISE?

Qatar Today - - DEVELOPMENT > BANK NOTES - BY V L SRINI­VASAN

The con­fi­dence of in­vestors was clearly ev­i­dent when Me­saieed Petro­chem­i­cal Hold­ing Com­pany, a unit of state-owned Qatar Petroleum, con­ducted a QR3.3 bil­lion ($880 mil­lion) Ini­tial Pub­lic Of­fer (IPO) of its shares in the lo­cal mar­ket on De­cem­ber 31, which was said to be over­sub­scribed by five times! The IPO was open only to Qatari na­tion­als and the com­pany could have fetched more had they been of­fered to those from other coun­tries.

Ever since the Mor­gan Stan­ley Cap­i­tal In­dex (MSCI) an­nounced a year ago that Qatar would be in­cluded in the emerg­ing mar­kets (EM) in­dex from June 2014, a flurry of ac­tiv­ity has been wit­nessed in the mar­ket, which is set to be­come a re­gional in­vest­ment hub.

The up­grade will earn Qatar Ex­change (QE) a place on the global in­vest­ment radar with a huge funds in­flow as a re­sult of join­ing the higher tier. An up­grade will not only en­sure in­creased vis­i­bil­ity of ex­ist­ing listed com­pa­nies be­fore for­eign fi­nan­cial pow­er­houses, but would also en­tice other en­ti­ties, in­clud­ing fam­ily-owned com­pa­nies, to go pub­lic.

With stiff com­pe­ti­tion from the neigh­bour­ing GCC coun­tries, es­pe­cially the UAE, which is to be ac­corded the EM sta­tus along with Qatar, in at­tract­ing the in­vestors, the govern­ment has al­ready ini­ti­ated several steps such as mod­i­fy­ing cer­tain rules and start­ing to work with com­pa­nies to raise the for­eign own­er­ship lim­its (FOLs) to 25% to cre­ate an in­vestor-sup­port­ive en­vi­ron­ment.

In ad­di­tion, the Qatar Cen­tral Bank (QCB), QFC Reg­u­la­tory Authority (QFCRA) and Qatar Fi­nan­cial Mar­kets Authority (QFMA) jointly launched a “strate­gic plan” in De­cem­ber last year for the fu­ture of fi­nan­cial sec­tor reg­u­la­tion and more such poli­cies to lure in­vestors, both lo­cal and for­eign, are ex­pected later this year.

The “strate­gic plan” con­tains six mu­tu­ally re­in­forc­ing goals, through which the reg­u­la­tory au­thor­i­ties aim to strengthen the fi­nan­cial sec­tor, con­trib­ute to job cre­ation and en­cour­age in­vest­ment in a di­ver­si­fied and com­pet­i­tive econ­omy, leav­ing fu­ture generations less vul­ner­a­ble to the boom and bust of en­ergy price cy­cles. All these mea­sures helped the QSE rally by more than 8% in the sec­ond half of 2013.

Ac­cord­ing to the data from QE, the In­dex main­tained the tempo in 2013, ex­cept in Septem­ber, to fin­ish the year up 24% at 10,380. With its con­sis­tent per­for­mance, Qatar was ahead of Bahrain (17%) and Oman (19%), but be­hind Kuwait (27%), Saudi Ara­bia (26%), Abu Dhabi (63%) and

Dubai (108%) in the GCC stock mar­kets. The mar­ket cap­i­tal­i­sa­tion grew nearly 21% to reach QR555 bil­lion ($152 bil­lion) by De­cem­ber 31.

“We have al­ready seen an in­crease in ac­count open­ing with the ex­change by for­eign in­sti­tu­tions and grad­u­ally these will in­crease their in­vest­ments in the mar­ket, es­pe­cially the stocks that will be in­cluded in the MSCI EM in­dex,” said Rashid bin Ali Al Man­soori, Chief Ex­ec­u­tive Of­fi­cer of QE, in an ear­lier in­ter­view with Qatar To­day.

Cit­ing MSCI and re­search data, Al Man­soori says Qatar will have around 0.45% weight in the in­dex and could at­tract QR1.82 bil­lion to QR3.64 bil­lion ($500 mil­lion to $1 bil­lion) ad­di­tional cap­i­tal to the mar­ket though “there are even higher es­ti­mates float­ing around.”

Ad­dress­ing the World Ex­change Congress, which was held in Doha more than month ago, he said: “We have con­tin­ued our quest to pro­vide the best prac­tices for at­tract­ing for­eign in­vest­ments to the do­mes­tic mar­ket and worked on is­sues like im­prov­ing liq­uid­ity and ex­pand­ing the mem­ber­ship base and cus­to­di­ans, fa­cil­i­tat­ing list­ing pro­ce­dures and de­vel­op­ing in­vest­ment prod­ucts and also im­prov­ing dis­clo­sure and trans­parency ap­pli­ca­tions.”

Fur­ther­more, the Ex­change Traded Funds (ETFs) are likely to make their de­but any day on the QE as the bourse is all set to join the emerg­ing mar­ket (EM) in­dex in June this year.

The for­eign debt-based and gen­eral in­dex-based ETFs are ex­pected to be launched ini­tially, and they will be fol­lowed by Is­lamic-in­dex based ETFs in the next cou­ple of months. This move is ex­pected to im­prove the liq­uid­ity in the mar­ket.

Al Rayan In­vest­ment's Direc­tor of As­set Man­age­ment, Ak­ber Khan, says the cap­i­tal mar­ket in Qatar is “still de­vel­op­ing” and a num­ber of new prod­ucts are likely to be in­tro­duced in the com­ing years.

“ETFs are a QR7.28 tril­lion ($2 tril­lion) mar­ket glob­ally and are con­tin­u­ing to gain in pop­u­lar­ity from both in­di­vid­ual and in­sti­tu­tional in­vestors. Al Rayan In­vest­ment has as­sisted in putting the ETF in­fra­struc­ture in place in Qatar and devel­op­ment work is con­tin­u­ing. If a fund man­ager was to launch a well-thought-out ETF with a rel­e­vant un­der­ly­ing in­dex or se­cu­rity, there is ev­ery rea­son for it to be a suc­cess in Qatar,” Khan says.

Such ef­forts have started pay­ing off as the QE In­dex reached 12,519.54 on April 17 and is shortly ex­pected to cross the pre-fi­nan­cial cri­sis high of 12,627 of June of 2008.

The in­dex in­cludes 43 com­pa­nies, some of them the largest and most liq­uid stocks traded on the ex­change, such as Qatar Na­tional Bank, In­dus­tries Qatar and Oore­doo. Several others, in­clud­ing Qatar First Bank, are wait­ing in the wings to be listed on the ex­change.

Doha Bank CEO Dr R Seethara­man, who also ad­dressed the World Ex­change Congress, feels that Qatari com­pa­nies should take ad­van­tage of this devel­op­ment.

“There should be ex­ten­sive ef­forts to pro­vide an in­vest­ment en­vi­ron­ment that is more at­trac­tive for for­eign in­vestors to di­rect their in­vest­ments to­wards the Qatari mar­ket by en­cour­ag­ing several listed com­pa­nies to in­crease the max­i­mum own­er­ship per­cent­age al­lo­cated for non- Qataris. MSCI up­grade is also an op­por­tu­nity for com­pa­nies to give more em­pha­sis to cor­po­rate Gov­er­nance and thereby en­cour­age for­eign own­er­ship. This will en­able them to im­prove their mar­ket cap­i­tal­i­sa­tion.”

Even be­fore Qatar could be grouped along with EM economies, which are tracked by in­vestors with an as­set base of around QR22 tril­lion ($6 tril­lion), global cor­po­rate houses started ex­plor­ing the op­tions to in­vest their money in Qatar, as the govern­ment an­nounced several in­fra­struc­ture projects in the run-up to the 2022 FIFA World Cup, as well as to meet the goals set by the Qatar Na­tional Vi­sion 2030.

“Not all for­eign in­vestors are wait­ing for the up­grade to EM sta­tus. Many have al­ready been in­vest­ing in Qatar in re­cent months, some for the last few years. How­ever the change in sta­tus will al­low Qatar to share the global stage with more main­stream emerg­ing mar­ket in­vest­ment des­ti­na­tions such as the big-four BRIC coun­tries. This will mean global at­ten­tion will not only be on Qatar's in­vest­ments glob­ally, but on op­por­tu­ni­ties to in­vest in­side Qatar,” Khan says.

Ac­cord­ing to him, a great deal of work has been done by reg­u­la­tors, QE and the govern­ment to en­able Qatar to be el­i­gi­ble for the up­grade and they should be proud. Apart from work­ing with com­pa­nies to raise for­eign own­er­ship lim­its, QSE has made ad­vances in many ar­eas such as trade set­tle­ment, hav­ing ap­pro­pri­ate sys­tems in place and be­ing con­nected to var­i­ous global set­tle­ment ex­changes, Ak­ber Khan says.

Re­search by the Dubai of­fice of Deutsche Bank showed that liq­uid­ity in MENA mar­kets was on an up­ward trend with 2014 Year-To-Date av­er­age daily trad­ing vol­ume for Qatar at QR673.4 mil­lion ($185 mil­lion) near­ing the pre-eco­nomic cri­sis lev­els in 2008. Com­pa­nies have also be­gun to look favourably at FOLs and some have in­creased them.

Deutsche Bank an­a­lyst Alek­sander Sto­janovski says: “We ex­pect the in­clu­sion of more stocks to also drive a higher weight­ing of around 1.3% ver­sus 0.95% pre­vi­ously, which in turn should also push more liq­uid­ity into the two mar­kets when Qatar and UAE are of­fi­cially in­ducted from June 2, 2014. Mar­ket con­di­tions are turn­ing favourable for for­eign in­vestors.”

“Since June 2013, Qatar has out­per­formed the MSCI EM in­dex by 17% and the UAE by 57%. With the in­creased mar­ket fo­cus that comes with EM sta­tus, Qatar and UAE led the re­gion in fund in­flows last year, bring­ing in a to­tal of QR6.55 bil­lion ($1.8 bil­lion), of which Qatar re­ceived QR3.086 bil­lion ($848 mil­lion) while the UAE had QR3.47 bil­lion ($954 mil­lion) of in­flows,” Sto­janovski adds.

Qatar will ben­e­fit from up to three re­clas­si­fi­ca­tions from fron­tier to emerg­ing mar­ket sta­tus in 2014 – one each from MSCI in June, S&P Dow Jones in Septem­ber and FTSE is also pos­si­ble later this year. “Ac­count­ing for both pas­sive and ac­tive man­agers, there is likely to be in ex­cess of QR18.2 bil­lion ($5 bil­lion) of cap­i­tal flow­ing in to the mar­ket this year. There will, how­ever, be some out­flows too,” Khan adds.

The QE also teamed up with state-owned En­ter­prise Qatar, which sup­ports small and medium-sized en­ter­prises (SMEs), in Fe­bru­ary this year to de­velop a sub­sidy pro­gramme that will pay for a per­cent­age of list­ing costs for smaller busi­nesses. Both the en­ti­ties will help the SMEs al­ready ap­proved for the pro­gramme to go pub­lic in the near fu­ture

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