Strength through Diversity

Today’s Qatar Stock Exchange (QSE) dates from the 1995 establishment of the Doha Securities Market (DSM), which opened two years later. Its task was to galvanize the capital markets into a diversified investment address and catalytic force for economic transformation. And since the 2009 partnership between Qatar Holding—the strategic and direct investment arm of sovereign investment fund Qatar Investment Authority (QIA)—and NYSE Euronext, it has matured into a leading force in the GCC.

Long-term Confidence

Rashid Bin Ali Al Mansoori, the CEO of QSE, explained in a TBY interview how the bourse has been honed into a tool for wider economic advancement. “We are working within the framework of Qatar National Vision 2030 (…) the guiding light for many of our initiatives (…) to create a modern economy, and that means QSE needs to facilitate a vibrant efficient financial market in Qatar.“ Underpinning QSE’s advancement is the long-term confidence it has inspired, as evidenced in upgrades from global index benchmark providers MSCI and FTSE, in consequence of which, “We are effectively the largest emerging market in the MENA region as per MSCI and FTSE.“ Duly, the QSE has attracted long-term global institutional investors, including pension funds, sovereign wealth funds, and large emerging market passive investors (having attracted) capital inflow of more than USD2 billion since the upgrades. “Our listed companies now have access to a global institutional investor base that will facilitate them in further capital raising should they wish to increase their capital in future.“ Foreign funds regularly account for between one-quarter and one-fifth of total market turnover. Naturally enough, the sustained credibility of a bourse provides fertile soil for the diversification that retains investor appetite.
Portfolio diversification is the name of the game, whereby the QSE provides “a platform to our customers where they can trade multiple asset classes with varying trading strategies.“ In 2016 the bourse introduced liquidity provision, the theory being that liquidity providers ensure greater price stability, while allowing traders to buy and sell at any price level. Added to this is margin trading, while exchange-traded funds (ETFs) are also in the pipeline, bolstering long-term sustainability. The prospective ETF will invest and reflect the Qatar Index largest-20 companies by market capitalization and liquidity. Reportedly, fees are earmarked at 0.5% and hence among the lowest in EMs. Meanwhile, an annual dividend will be paid, net of fees, and similar to the index, which at the date of writing bears a yield of 3.8%.

The Benchmark Index

The QSE main index, rebalanced in April and October, measures the 20 biggest and most liquid stocks listed on the bourse. Medicare group joined the 20-stock benchmark index alongside incumbents Qatar National Bank, Commercial Bank, Masraf Al Rayan, Qatar Islamic Bank, Doha bank, Qatar International Islamic Bank, Industries Qatar, Gulf International Services, Qatar Electricity and Water Company, Ooredoo, Vodafone Qatar, Nakilat, Milaha, Barwa, Ezdan, United Development Company, Qatar Insurance, Qatari Investors Group, and Aamal. Historically, the QE General Index peaked at 14,350.5 in September 2014 and troughed at 6,647.18 in May 2010.

In terms of the sharia route, the QE Al Rayan Islamic Index became active on January 7, 2013 in a bid to foster the evolution of a sharia-compliant exchange traded fund. On June 15, QSE Al Rayan Islamic Index appreciated 1.17% to 3,655.08 points.

Lemons to Lemonade

Qatar’s recent malaise, if nothing else, proves perfectly how international relations can turn on a dime; it broke less than two weeks after Moody’s Investors Service reduced the nation’s credit score by one notch to Aa3, the fourth-highest investment grade. Bear in mind though, that Qatar remains among the highest rated EMs. Thus, while initially in June QSE printed the world’s worst YtD return, down 13.5% on regional noise, trading on June 11 saw a QSE Total Return Index gain of 75.23 points (0.83%) to 15,319.12 points as trading volume rose to 13.09 million. Confidence came from the assurances of Minister of Finance HE Ali Sherif Al-Emadi that for the economy it was business as usual. Of QSE’s 44 listed companies, 38 traded, with 32 rising and five companies declining, and one remained static that day. The QSE Al Rayan Islamic Index climbed 1.09% to 3,601.28 points, while the QSE All Share Index gained 1.09% to close at 2,586.38 points. After all, dips always present buying opportunities.

Performance Overview

Of the 44 listed companies, 12 closed 2016 higher, while 31 went south and one posted no change. For the year, the All Shares Index rose a slender 7.4 points (0.07%) to close at 10,436.76. Market capitalization had appreciated 1.86% YoY to QAR563.5 billion up from QAR553.2 billion. Trading value and volume posted respective declines of 26.39% to QAR69 billion and 14.15% to 2 billion shares, while the number of transactions dropped 16.23% YoY to 997,482 transactions. Market capitalization, up 1.86% YoY, printed at QAR563.5 billion. The top three sectors by trading value were banks and financial services, accounting for 35.55% of the total, industrials on 24.07%, and real estate 11.85%. The leading three names by value were QNB at 9.52% of the total, with Masraf Al Rayan second at 7.24%, and Gulf International Services at 6.94%.
More recently, the 23 trading days of May 2017 saw the benchmark index shed 1.62%, closing at 9,901.38 points. Trading value appreciated 27.10% MoM to QAR5.9 billion from April’s QAR4.7 billion. Meanwhile, trading volume rose 27.54% to 231,144,746 shares, and transaction number climbed 14.37% to 70,499 MoM. Blazing the trading value trail was the banks and financial services sector, which saw 40.18% of the total, after which came the real estate sector 16.89%, industrials 12.97%, telecoms 11.84%, transportation 7.50%, consumer goods and services 6.53%, and insurance sector 4.1%. For the month, market capitalization had relinquished 2.55% at the end of May to QAR528.6 billion. The top-three performers by trading volume were the banks and financial services sector at 35.35%, telecoms at 26.23%, and real estate at 24.33%. By brokerage, YtD as of May 2017 The Group Securities, Dlala Brokerage, and QNB FS QNB Financial Services accounted for 61.52% of total trading activity.

IPOs

A notable event on April 27, 2016 was the listing of Qatar First Bank, a prominent sharia-compliant institution with an international footprint upon approval of the Qatar Financial Markets Authority (QFMA). Trading under the QFBQ symbol, the bank’s authorized capital was given as QAR2.5 billion.
That January, Qatari construction contracting firm Investment Holding Group (IHG) had got the green light to list 60% of its share capital, marking Qatar’s first IPO since 2014. Between January 8 and 22, shares were offered to Qatari citizens in an offer valued at approximately QAR503 million. At time of print, two ETFs—one conventional and the other sharia-compliant—were poised for listing by end-June 2017. And meanwhile, the Qatari exchange itself was awaiting shareholder approval for its own IPO, which would render it only the second Gulf bourse to be listed.

In short, innovative product provision at the QSE mirrors key moves elsewhere in the economy to incentivize foreign investment, notably Qatar’s 2016 USD9-billion bond issue, and the forthcoming PPP law. Small wonder, then, that the nation ranked 18th in the Global Competitiveness Report 2016-17 and second in the region.