WILL QATAR BE THE NEXT INVESTORS' PARADISE?
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