GCC STOCK MAR­KETS FEEL THE HEAT

OIL PRICE WOR­RIES, CON­CERNS OVER FIS­CAL AUS­TER­ITY MEA­SURES AND THE CHI­NESE CO­NUN­DRUM PLAYED TO THE HILT IN HAM­MER­ING THE QATARI BOURSE DUR­ING 2015 BUT IS­LAMIC STOCKS AP­PEAR TO HAVE BEEN THE MOST RE­SILIENT.

Qatar Today - - INSIDE THIS ISSUE - BY ILAK GAN

Oil price wor­ries and con­cerns over fis­cal aus­ter­ity mea­sures played to the hilt in ham­mer­ing the Qatari bourse dur­ing 2015.

Awell-cal­i­brated in­vest­ment phi­los­o­phy seems to have bul­warked the Is­lamic stocks to a great ex­tent as Al Rayan Is­lamic In­dex – in which bank­ing, real es­tate and in­dus­tri­als con­sti­tute close to three-fourths of the weight – fell 5.99% against a 15.11% plunge in the key 20-stock Qatar In­dex in 2015, a year that had not wit­nessed any maiden of­fer but for three rights is­sues.

Both the To­tal Re­turn In­dex and All Share In­dex had plum­meted by 11.53% and 11.88%, re­spec­tively, in the Qatar Stock Ex­change (QSE), where for­eign in­sti­tu­tions were rather net buy­ers to the tune of QR1.13 bil­lion, amidst the mar­ket's pes­simistic run that saw as many as 34, or more than 79%, of the 43 eq­ui­ties in the red and as much as QR124 bil­lion in cap­i­tal­i­sa­tion be­ing wiped out.

In­vestors who bought tele­com and in­dus­tri­als eq­ui­ties had se­vere heart­burn as they were the hard­est hit and, sim­i­larly, those who had large and mi­cro-cap eq­ui­ties in their port­fo­lio also saw their purses get lighter in the year, which saw FTSE Rus­sell, a sub­sidiary of Lon­don Stock Ex­change, de­cide to upgrade QSE to "sec­ondary" emerg­ing mar­ket from "fron­tier" sta­tus as the mar­ket met many of the cri­te­ria re­quired to at­tain the higher sta­tus.

While weak oil prices (now at least 60% lower year-on-year) had been a per­sis­tent fac­tor, the con­cerns over fis­cal aus­ter­ity mea­sures started im­ping­ing the mar­ket sen­ti­ments from the be­gin­ning of the third quar­ter and the weak Chi­nese in­dus­trial out­put and de­val­u­a­tion of the yuan pre­cip­i­tated the de­cline dur­ing the last quar­ter.

Amidst an over­ar­ch­ing bear­ish grip, the large cap eq­ui­ties were the hard­est hit with their value shav­ing off 20.37%, fol­lowed by

mi­cro-cap stocks 14.92%, small cap stocks 9.92% and mid-caps 9.68%.

The QSE, which had once touched a two-year low, is not the lone en­tity to suf­fer as bourses across the Gulf have been go­ing through a trough pri­mar­ily be­cause of the weaker sig­nals from the global en­ergy mar­ket brought about by low oil prices, which could lead the GCC (Gulf Co­op­er­a­tion Coun­cil) to see a short­fall of $275 bil­lion in ex­port earn­ings in 2015, as opined by the In­ter­na­tional Mon­e­tary Fund (IMF).

The hy­dro­car­bons-based GCC economies wit­nessed fal­ter­ing for­tunes in the bourses in 2015 with Saudi Ara­bia re­port­ing a 17.1% de­cline, Dubai (16.5%), Bahrain and Oman (14.8% each), Kuwait (13%) and Abu Dhabi (4.9%). “The year 2015 turned out to be a his­tor­i­cal turn­ing point for how the in­vestors and the world at large looked at GCC economies and their equity mar­kets. In­vestors largely re­mained on the side­lines which af­fected trad­ing ac­tiv­ity on the GCC ex­changes,” Kuwait-based Kamco Re­search said.

QSE – which oth­er­wise wit­nessed many far-sighted mea­sures such as mar­gin trad­ing, rights trad­ing and higher for­eign own­er­ship lim­its up to 49% – saw to­tal trad­ing turnover more than halve with vol­umes and trans­ac­tions drop­ping 48.14% and 42.15%, re­spec­tively.

The in­dex – which fell by more than 3% month-on-month in Jan­uary to nearly 12,000 points – ex­pand the max­i­mum to reach a high of 12,450 points in the sub­se­quent month. Over­all in the 12-month ses­sion, seven of the bourses were in re­verse gear with the max­i­mum fall in ex­cess of 13% re­ported in Novem­ber and, fi­nally. the in­dex closed just above 10,400 points.

Banks and fi­nan­cial ser­vices led the sec­toral indices in value traded dur­ing 2015, ac­count­ing for over 32% of the to­tal, fol­lowed by real es­tate and in­dus­tri­als (23% each) and tele­com (8%).

In terms of vol­ume, the real es­tate sec­tor's share was 36%, fol­lowed by banks and fi­nan­cial ser­vices (22%) and tele­com and in­dus­tri­als (14% each).

The Qatari bourse, which has been up­graded to emerg­ing mar­ket (EM) by both MSCI and S&P Dow Jones, was com­par­a­tively in a bet­ter po­si­tion as the MSCI EM in­dex had fallen by 17.2% in 2015.

The QSE showed a che­quered path dur­ing 2010-15 with the in­dex gain­ing as much as 24.8% in 2010 but plum­meted to a mere 1.1% in 2011 and then saw a 4.8% de­cline in 2012. How­ever, 2013 saw the in­dex at its high­est at 24.2%, which then fell to 18.4% in 2014.

QNB said the Qatari equity mar­ket re­mains “rel­a­tively com­pelling” as com­pared to its GCC peers be­cause

val­u­a­tion re­mains “at­trac­tive”. In sup­port, QNB notes that QSE is trad­ing with a P/E (price-earn­ings) ra­tio of 10.4x com­ple­mented by a div­i­dend yield of 5.6%.

Jan­uary saw a twelve-month trail­ing P/E of 15.28, which rose to 15.93 in Fe­bru­ary but only to fall to 14.75 in March. It then in­creased to 15.29 in April but again fell to 15.03 in May, 14.31 in June, 13.81 in July, 13.41 in Au­gust and 13.35 in Septem­ber. In Oc­to­ber, P/E rose to 13.42 but fell sharply to 11.23 in Novem­ber and fur­ther to 11.18 in De­cem­ber.

In the case of div­i­dend yield, it stood at 3.5% in Jan­uary, 3.36% in Fe­bru­ary, 3.6% in March, 3.48% in April, 3.54% in May, 3.97% in June, 4.11% in July, 4.23% in Au­gust, 4.25% in Septem­ber, 4.23% in Oc­to­ber, 5.04% in Novem­ber and 4.85% in De­cem­ber.

The ra­tio of price-to-book value, which re­mained at more than two (mul­ti­ples) for most of the months, de­clined to 1% in the last two months.

QSE was Lon­don Stock Ex­change­listed Qatar In­vest­ment Fund's in­vest­ment man­ager's “favoured” mar­ket in the GCC re­gion due to the rel­a­tively sta­ble political en­vi­ron­ment, mas­sive in­fra­struc­ture spend­ing, strong growth in the non-hy­dro­car­bon sec­tor and size­able hy­dro­car­bon re­serves, cou­pled with at­trac­tive val­u­a­tions and a healthy div­i­dend yield.

Nev­er­the­less, dur­ing 2015, tele­com stocks wit­nessed a 33.6% plunge, fol­lowed by in­dus­tri­als (21.11%), con­sumer goods (13.13%) and banks and fi­nan­cial ser­vices (12.42%); whereas trans­port surged 4.85%, real es­tate (3.92%) and in­sur­ance (1.9%).

Al­though Qatar's hy­dro­car­bons were on the down­swing, its non-hy­dro­car­bons have gained sub­stan­tial mo­men­tum; which to some ex­tent was re­flected in the coun­try's cap­i­tal mar­kets too as trans­port and real es­tate sec­tors out­per­formed the mar­ket.

Ac­cord­ing to the Min­istry of De­vel­op­ment Plan­ning and Sta­tis­tics Qatar Eco­nomic Out­look 2015-17 Up­date, the coun­try's non-oil and gas sec­tor will post dou­ble-digit growth in 2015, again spear­headed by con­struc­tion, which is ex­pected to ex­pand by 13.5% in 2015. Ser­vices out­put, too, will rise strongly by 9.8%, buoyed by pop­u­la­tion growth.

Early in Jan­uary last year, HE the Prime Min­is­ter Sheikh Ab­dul­lah bin Nasser bin Khal­ifa Al Thani had set up three min­is­te­rial groups to speed up ma­jor in­fra­struc­ture projects in the coun­try and en­hance the pri­vate sec­tor's par­tic­i­pa­tion in them.

Bank of Amer­ica Mer­rill Lynch had said Qatar's in­fra­struc­ture pipe­line ap­pears “most ro­bust” as a third of to­tal in­vest­ment is car­ried di­rectly by the sov­er­eign and due to size­able pub­lic sec­tor in­volve­ment.

The pos­i­tive mar­ket sen­ti­ments to­ward real es­tate and trans­port can be bet­ter gauged from their nine-month cor­po­rate per­for­mance as they both showed higher prof­itabil­ity than the mar­ket av­er­age; even as earn­ings con­cerns were built in due to fis­cal aus­ter­ity mea­sures be­ing an­nounced not only in Qatar but else­where in the Gulf economies.

Find­ing that the short-term im­pact of re­duc­tion in sub­si­dies is “neg­a­tive” for cor­po­rate prof­itabil­ity (in the GCC), In­vest AD said “we ex­pect an­a­lysts to cut earn­ings es­ti­mates and that equity risk pre­mi­ums will rise some­what.”

“The trend to­wards aus­ter­ity, and of gov­ern­ments try­ing to widen their rev­enue bases by ra­tio­nal­is­ing en­ergy sub­si­dies, will have cost im­pli­ca­tions for com­pa­nies through­out the GCC,” it said.

Not­with­stand­ing the volatil­ity in the mar­kets, which it­self is an op­por­tu­nity, Qatar al­lowed a higher for­eign own­er­ship limit (FOL) – up to 49% – through an Emiri De­cree, fol­low­ing which the Qatar Cen­tral Se­cu­ri­ties De­pos­i­tory amended FOL in Nak­i­lat, Mi­laha, Ez­dan Real Es­tate, Com­mer­cial Bank, Aa­mal Com­pany, Qatar Gen­eral In­sur­ance and Rein­sur­ance and Doha Bank. The de­cree also pro­vides for the treat­ment of GCC cit­i­zens as Qataris in terms of own­ing the shares of listed com­pa­nies.

How­ever, Afa Bo­ran, Man­ag­ing Di­rec­tor of Amwal, had said the en­try of more over­seas in­vest­ments (in view of al­low­ing up to 49% FOL in listed com­pa­nies) was de­pen­dent on cer­tainty and sta­bil­ity in the oil prices, whose trough had ear­lier prompted a listed en­tity, which has a di­rect link with the hy­dro­car­bon seg­ment, to un­ex­pect­edly is­sue a profit warn­ing.

“At a lower oil price, we will not ex­pect the GCC mar­ket to see the same kind of equity val­u­a­tion pre­mi­ums we saw pre­vi­ously,” he had said.

In the debt mar­ket, a to­tal of 115,500 trea­sury bills val­ued at QR1.15 bil­lion were traded across 15 deals and 558,550 govern­ment bonds val­ued at QR5.6 bil­lion traded across 39 trans­ac­tions dur­ing 2015.

“Govern­ment au­thor­i­ties have sought to in­crease trans­ac­tions in th­ese in­stru­ments to sup­port wider fi­nan­cial de­vel­op­ment ob­jec­tives,” the Qatar Eco­nomic Out­look 2015-15, re­leased in June, had said.

How­ever, 2015 also saw small and medium en­ter­prises yet to tap the QE Ven­ture Mar­ket de­spite the in­tro­duc­tion of a list­ing sub­si­dies pro­gramme; nor did the an­nounced ex­change-traded funds from two lenders find their way into the mar­ket

Newspapers in English

Newspapers from Qatar

© PressReader. All rights reserved.