The year 2014 was quite eventful for Qatari stocks. Two positive developments took place on the Qatari bourse in the year that helped it considerably offset the adverse impact of the falling world oil prices: the conferring of the Emerging Market status on Qatar Exchange by MSCI, and increase in foreign ownership limits in listed companies to 49 percent.
In June 2014 Qatar and Dubai stock exchanges were conferred the Emerging Market status by the coveted MSCI which ensured additional inflows of foreign investment into the two markets. The development was significant considering that several high-profile western pension and portfolio funds having access to huge funds, track Emerging Market stocks.
The second important development on Qatar Exchange was that foreign ownership limit in the capital of listed companies was raised to 49 percent vide a law passed in the year (2014). For most companies this percentage was 25 earlier. Some people get confused with the earlier rule that stipulated that foreigners could own up to 49 percent of a company’s shares (not capital). This percentage (49) was for free-float shares of a company (shares of a firm available on an exchange for the public to trade).
In this context it is also important to recall that the law that raised the foreign ownership limit in listed entities specified that for trading and ownership purposes, other GCC nationals were to be treated on par with Qataris. Citizens of other GCC states trading on Qatar Exchange were earlier subject to foreign ownership rules. Those rules were lifted for them. This in effect meant that non-GCC foreigners, particularly the cash-rich western institutional investors, could now trade in more Qatari stocks than before.
These developments together helped the Qatari bourse mitigate the adverse impact of the slump in oil prices by the end of the year. The downslide in the crude rates, obviously, hit all GCC equities and Qatar was no exception, though its oil exports are small as compared to Saudi Arabia (which is the world’s largest oil exporter), Kuwait and Abu Dhabi, for instance. Qatar is the world’s top LNG exporter and LNG prices are linked to those of oil. As a result of the oil-triggered selloff, Qatari stocks took a beating by 3.7 percent in December 2014.
Qatar’s overall performance
Overall, however, Qatar’s equity market reported robust performance in 2014 with a year-on-year gain of 18.4 percent, which was the largest in the region. This was despite the fact that trading sentiment for a better part of the latter half of 2014 was pessimistic. Retail investors pressed the panic button but foreign investors, largely the institutional ones, provided the needed buying support. “Small investors mostly dominate the trading volumes so they can easily impact market sentiment,” explained an analyst*.
Notwithstanding the falling crude prices, coupled with geopolitical tensions in the region, Qatar’s main benchmark index gained 1,906 points in the year to 12, 285. Market capitalization rose almost 22 percent to QR 676 billion (USD 185.63 billion).
The opening month of the current year (January 2015) didn’t, though, bode well for Qatari equities. They fell sharply in the month, with the index dipping 3.14 percent to 11,889 points, below the psychological barrier of 12,000, by January-end. The market capitalization, also known as investors’ wealth, was down by a massive QR 28 billion, or 4.14 percent, to QR 648 billion (USD 178 billion) by month-end due to oil-fuelled selloff.
The month of February brought some cheer back to the stock market as the shares rose sharply on the first day of the month when the exchange reopened for trading after the weekend closure. The main benchmark index looked up 162 points to breach back the magical 12,000 points barrier, to 12,062. A recovery in world oil prices had done the trick by boosting market sentiment.
As the first five-day trading week of the month ended on 5 February, a Thursday, the main index of the market had recovered and shot back to the 12,520 level. The market capitalization figure was also back to the December 2014 level to QR 676 billion. Buy volumes of local and foreign institutional investors were both high.
Qatari corporates had bought 3.94 million shares on 5 February, for instance. The stocks were worth QR179.42 million. Foreign institutional investors trailed closely with their trading volumes totalling 2.79 million shares valued at QR 158 million. On this particular day, as an example, a total of 28 million shares were traded on the Qatari bourse with their collective value being QR 883.88 million across more than 10,600 deals.
Listed companies report growth
Also, by the end of the first trading week of the month,
some 19 of the 43 listed entities had reported their 2014 financials and their net profits collectively stood at a huge QR 29.8 billion, or USD 8.18 billion,
representing 8.8 percent growth for the same companies the previous year (2013).
“If that indicates any trend, the collective net profit of all the listed entities in 2014 could likely witness a healthy growth of 8 to 10 percent,” said a banker. Going by the company results so far (until 5 February, 2015) it was also anticipated that cash dividend payouts by companies could comfortably breach the QR 25 billion-mark, said analysts.
Looking ahead, the current trend suggests Qatari stocks may rebound to pre-oil crisis levels. Kuwait’s Global Investment House (GIH) analysts said in remarks published by a local daily on 4 February that this was the best time for medium and long-term investors to re-enter the market. “They (medium and long-term investors) can re-enter the market at levels higher than 12,300 points,” GIH analysts said.
There is indeed some worry as oil prices are not expected to rally back soon and that may likely affect public spending, which is one of the main drivers of companies’ profitability in all GCC countries, with Qatar being no exception.
Some support could, however, come from real estate stocks in the case of Qatar in 2015, going by past trends and provided declining oil prices do not eventually affect the country’s real estate market. Analysts are of the opinion that Qatar’s vibrant real estate market may not be adversely impacted due to the ongoing FIFA 2022-related development projects.
Figures suggest that real estate transactions in the country grew by as much as 25 percent to QR 56 billion (USD 15.37 billion) last year over 2013. In that year (2013) the transactions totalled QR 45 billion, or USD 12.35 billion, according to an Ezdan Holding Group report. The report noted that the shares of real estate companies on Qatar Exchange grew by 15 percent in 2014, just a little less than the overall market growth of 18.4 percent (exact growth was 18.36 percent).
“Real estate stocks are immune from oil price-induced market volatility,” Ezdan Group said, insisting the sector was expected to accelerate the pace of its growth in 2015.
While that could be true and only time will tell, the Qatar Central Bank’s real estate index that tracks real estate prices in the country suggests otherwise. The index had peaked in November 2014 at an all-time high of 266.5 points, but slid by 3 percent the following month (December) to 255.6 points. The index needs to be watched closely in the months to come since any further fall may, obviously, not bode well for real estate stocks this year.
2015 is also crucial for Qatar Exchange because Exchange-traded Funds (ETFs) are all set to be launched and the junior market listing small and medium-sized enterprises (SMEs) is also expected to be inaugurated soon.