Qatar’s stock market braved a highly volatile time last year. Sharp fluctuations in oil prices kept investors on tenterhooks. But, this year is expected to bring cheer to investors. Riding on the recovery in oil prices, shares are expected to provide healthy returns to investors.
Last year, Qatar Exchange Index (QE Index) ended the year on a flat note with it closing at 10,437 points, showing a gain of merely two points over the previous year’s close of 10,435 points.
Of the total 44 listed companies in the exchange, shares of 12 ended the year higher while 31 closed lower at the end of 2016, while one remained largely flat. Market capitalization rose by 1.86% to reach QR563.46 billion at the end of 2016 as compared to QR553.2bn at the end of the previous year.
“Historically the first quarter of a year has always been better compared to other three quarters and companies reward their shareholders with dividends. Investors should look for companies to invest who have a solid financial background and a history of distribution of dividend,” Ahmad Akl – a Doha-based financial analyst told BQ.
“Oil prices play a crucial role in Gulf countries, including Qatar, as rising oil price means increase in revenue for governments while falling prices affect the revenues adversely. All the sectors in Qatar are directly or indirectly impacted by the prices of oil”
Oil prices play a crucial role in Gulf countries, including Qatar, as rising oil price means increase in revenue for governments while falling prices affect the revenues adversely. All the sectors in Qatar are directly or indirectly impacted by the prices of oil.
“This year is expected to be much better than the last year, because of the recovery in the prices of oil. The decision by Organization of the Petroleum Exporting Countries (OPEC) and other oil producers to cut oil production has pushed oil prices up,” Ahmad said.
Brent crude prices have jumped over 15% since the end of November. Brent crude is a major trading classification of crude oil that serves as a major benchmark price for purchases of oil worldwide.
“We expect oil prices to continue rising to the $60 per barrel level, if the production cuts recently announced by OPEC and non-OPEC are fully implemented. Higher oil prices should boost government revenue and embolden capital spending plans as well as supporting sentiment, investment and consumer spending in the broader economy,” QNB noted in a report released in the middle of January, 2017.
On 11 December, 11 non-OPEC oil-producing countries including Russia agreed to cut their output by 558,000 barrels per day in a joint bid to boost a saturated global market.
The decision, taken at a meeting at the OPEC headquarters in Vienna, follows the group’s announcement on November 30 that it would reduce its output by 1.2 million barrels per day (mbpd) from January, to 32.5 mbpd. It was the group’s first cut in eight years. Under that deal, OPEC sought for oil-producing nations which are not members to lower their output by 600,000 barrels a day. Russia had already signaled it would provide half of that production cut in the first half of 2017.
These turn of events have brightened the prospect for different sectors.
Banking and financial services sector
“The banking and financial services sector saw muted growth last year as ‘QE All Share Banks & Financial Services Index’ increased from 2,912.22 points at the end of the last trading day of 2015 to 2,803.94 points showing an increase of around 4%”
The increase in the price of oil means more revenue for the government and this in turn means an increased spending by the government.
“Helped by the prices of oil, the GDP of Qatar is expected to rise this year. The expenditure by the Government of Qatar is likely to be more than last year due to rising oil prices. Increased government expenditure will work in favor of the banking sector because many banks have accounts of government departments,” said Ahmad.
The banking stocks are investor stocks and not trader stocks. A major chunk of investors buy banking stocks for the long term with very few groups of investors buying it for the short term.
“Within the banking sector, Islamic banking stocks are likely to fare better than stocks of traditional banks. If we see last year, Islamic banking stocks have performed better than the traditional banking stocks and this trend is likely to continue this year,” added Ahmed.
This year is also important for the banking sector, as there is talk of merger of three Qatar-based banks, Masraf Al Rayan, Barwa Bank and International Bank of Qatar (IBQ) and talks are on for a three-way merger. If that happens, it will create a bigger bank in terms of assets and operations.
“The potential combination would create the largest Sharia-compliant bank in Qatar and the third largest such lender in the Middle East, with assets worth more than QR160bn ($44bn). This bank will be a Qatari bank, which is likely to focus on overseas expansion,” a banking analyst of a Doha-based brokerage firm told BQ.
The banking and financial services sector saw muted growth last year as ‘QE All Share Banks & Financial Services Index’ increased from 2,912.22 points at the end of the last trading day of 2015 to 2,803.94 points showing an increase of around 4%.
Consumer goods and services sector
This sector saw subdued performance last year. People were cautious last year because of falling oil prices and they were not spending very cautiously.
The spending was focused mostly on things which were essential, while there were fewer takers for luxury goods. But this year, as the oil prices are up, it is likely to be a good year for this sector.
“We will see consumers going on a spending spree, which will in turn benefit companies in the consumer goods sector. Compare it to the first and second quarter of 2016, the first quarter of the current quarter will see good performance. We will also see companies announcing dividends for shareholders in the first quarter of this year,” Ahmad said.
This sector could not cheer up investors, as ‘QE All Share Consumer Goods & Services Index’ declined from 5,959.98 at the end of December 2015 to 5,897.82 at the end of last year, recording a fall of around 2%.
“Companies in the Industrial sector are expected to announce better results in the first and second quarter of this year because oil prices were at a low level in the first and second quarter of 2016. The results are expected to be better because of the base effect as oil prices were low last year”
Performance of this sector is directly dependent on the prices of petrochemicals and petrol prices. Experts believe, the revenue of companies in this sector is likely to increase this year.
“The third and fourth quarters of 2016 were better than the first two quarters of the same year. This indicates that the current year is also expected to be a year of stability and growth for this sector,” said Ahmad.
Companies in this sector are expected to announce better results in the first and second quarter of this year because oil prices were at a low level in the first and second quarter of 2016. The results are expected to be better because of the base effect as oil prices were low last year.
Stocks in this sector are considered to be blue-chip stocks and should be held by investors for a long term.
This sector witnessed mild growth as ‘QE All Share Industrials Index’ rose from 3,150.68 points at end of December 2015 to 3306.67 points at the end of December 2016, registering a growth of 4%.
Stocks in this sector faced pressure last year because of high competition and dull market conditions, due to falling oil prices. This year is expected to bring stability to the market and the sector is forecast to see moderate growth. A new insurance law is likely to be implemented that will benefit the insurance sector.
“Last year, the Ministry of Public Health had said that it had completed work on a draft law for establishing a new health insurance system in the country. The first phase of the new insurance system is expected to be launched in 2017. The new system will replace Seha, the national health insurance scheme terminated on 31 December, 2015,” an insurance sector analyst with a consultancy firm based in Doha told BQ.
‘QE All Share Insurance Index’ increased from 4,083.39 points at the end of 2015 to 4,435.20 points at the end of 2016, showing a growth of 10%.
Real Estate Sector
This sector did not live up to the expectations of investors last year, but the New Year will bring cheer to all investors.
“This year will be a promising year for real estate as many new projects are expected to be launched. The new launches will help in increasing the revenue of companies and strengthen their balance sheets,” Ahmad said.
The ‘QE All-Share Real Estate Index’ fell from 2,374.15 points at the end of December 2015 to 2,244.46 points at the end of last year, showing a decline of 3.77%.
This sector emerged as the best sector last year, in terms of returns. The Telecom Index rose from 982 points at the end of December 2015 to 1,206 points at the end of last trading day in December last year, showing a rise of around 22% – a high return as compared to other indices.
“The telecom sector has been performing well in Qatar and is expected to continue in 2017,” a senior analyst of Kuwait Financial Centre ‘Markaz’ told BQ.
Qatar’s population is increasing and the demand for technology-related services and products is rising rapidly in Qatar. Both these factors augur well for stocks of this sector.
“Currency fluctuations put some pressure on the telecom stocks last year, because companies in this sector earn a substantial risk from other countries. This year there no such risk is expected and companies are likely to see increasing business,” said Ahmad.
The performance of the Banking and Financial Services, Industrial and Real Estate sectors have a major impact on the Qatari stock market as these sectors dominate in terms of overall trading value, volume and number of transactions in the stock market.
Last year, the Banks and Financial Services sector led trading value during accounting for 35.55% of the total trading value, followed by Industrials sector, which accounted for 24.07%. The Real Estate sector ranked third, accounting for 11.85%.
In terms of total trading volume, the Banks and Financial Services sector led the pack, accounting for 30.02% of the total trading volume, followed by Real Estate sector, which accounted for 20.13%. The Industrial sector ranked third, accounting for 18.23%.
Overall the share market will shadow the performance of Qatar’s economy. Recent reports by experts indicate that the economy will show improvement in the current financial year.
“We expect real Gross Domestic Product (GDP) growth to recover in 2017-18 with the non-hydrocarbon sector continuing to be the main driver of growth for a number of reasons. First, the slowdown in the non-hydrocarbon sector is partly attributable to a drag from manufacturing, which we expect to fade,” QNB said in the report about Qatar.
“Second, government investment is expected to continue to drive growth. The government budget announced in December slated a 3.2% increase in capital spending for 2017 and the Ministry of Finance has signaled its intention to sign QR46bn of multi-year contracts in 2017, adding to a stock of QR374bn in ongoing total project budgets in Qatar.
“Third, government investment continues to attract workers to Qatar who require a range of services and increase aggregate demand in the economy. The population data from December 2016 show year-on-year population growth of 7.3%,” the report noted.
With Qatar’s economy expected to move up, investors can now forget last year and hope to get healthy returns in 2017.
This article is from BQ Magazine’s Issue 41 – February 2017.
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