Grinning & bearing it

Qatari stocks have been under some pressure since late 2014 and early this year due to falling world oil prices.

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Stock market

The Qatari economy remained buoyant inspired largely by the 2022 FIFA World Cup-related infrastructure development projects, however, investors and financial and stock analysts didn’t attach much importance to the downward trend in crude prices. That sentiment was shaken a bit when last May, in Zurich, Switzerland, where FIFA is headquartered, several of its senior officials were arrested on corruption charges.

The day the arrests took place, 27 May, saw Qatari shares closing sharply lower, with the benchmark index shedding 1.45 percent to 12, 228.83 points. This was the Qatar Stock Exchange’s biggest fall in two months, analysts said. And that saw investors’ wealth worth USD 2.4 billion evaporate from the market (QSE) in a single trading day, to QR 649.4 billion.

Worst hit for real estate

Qatari stocks have off late been quite sensitive to the happenings related to FIFA, so, naturally, a fresh twist in the happenings at the world soccer body rattled the QSE to some extent. Real estate stocks of the QSE were the worst hit, with Ezdan, the multi-billion dollar property development, management and investment giant which has been included in the coveted MSCI Index recently, falling 3.33 percent, amidst a 2.14 percent decline the entire real estate sector suffered as a whole on that fateful day (27 May). There was so much panic selling of real estate stocks on that day that the only four chips of the sector accounted for almost 40 percent (QR 333.12 million) of the total loss in trading value (QR 841.89 million) on the QSE.

Similar was the situation with trading volumes. The four real estate shares (namely, Ezdan, Barwa, UDC and Mazaya) accounted for nearly 60 percent (14.12 million shares) of total loss in the trading volumes (23.69 million shares) that day. Ezdan had a massive share in the loss of both trading value and volume of the sector, the figures being QR 240.66 million and 11.71 million shares, respectively.

From 27 May, the downslide on the QSE continued. Investors lost QR 24.3 billion (USD 6.67 billion) of their wealth over a few weeks. The index loss was 331 points, or 2.21 percent (from 12,228.83 points on 27 May to 11, 897.95 on 18 June).

It is interesting to note that in the past one month Qatari stocks are down 4.60 percent, and much of the setback was caused between 27 May and 18 June. The fall was mainly due to selling pressure from local investors, both retail and institutional, and not from foreign institutional investors. Buying support from foreign institutions was strong all through, particularly on 27 May, QSE figures suggest. But if BQ magazine takes the past three months into account, the stocks have actually gained – by as much as 4.12 percent.

While all this was happening on the QSE and with regard to FIFA, media reports trickled in early in June that the Qatari bourse had overtaken its much older and bigger UAE peer as the GCC’s best performing market in terms of corporate earnings in the first quarter of 2015 with a 27.1 percent year-on-year increase, to USD 3.6 billion.

If that is taken as the quarterly average, the net profits of the 43 listed entities on the QSE for the whole year (2015) could likely cross a record QR 50 billion-mark.

Quarterly results

However, according to local media reports, the first quarter (Q1 2015) earnings of USD 3.6 billion of the QSE companies was mainly a result of the profits of real estate companies that soared more than three times in a year since the first quarter of 2014. Media reports quoted Global Research as saying that although the FIFA World Cup came under scanner, the hosting of the 2022 event still remained with Qatar, and that would further boost the country’s overheated real estate sector.

The sector added nearly 80 percent (79.7 percent, to be exact) to the incremental earnings growth of the Qatari bourse in the first quarter (Q1) of this year (2015). State-backed Barwa Real Estate Company, Ezdan and United Development Company (UDC), the developer of the iconic The Pearl-Qatar, lent massive weight to the sector’s overall earnings. Ezdan, as said earlier, was included in the MSCI benchmark in May (the MSCI’s emerging market status was conferred on the QSE a year ago, in June 2014).

Real estate prices continue to soar undeterred in Qatar, a survey conducted by the Ministry of Economy and Commerce during a conference of ‘Young and Prospective Entrepreneurs’ recently showed that exorbitant land and real estate prices in the country were a dampener as far as the entrepreneurial spirit of young Qataris was concerned as they (high cost of land and real estate) swelled the cost of doing business to unimaginably high levels. As the demand for real estate has been going up by leaps and bounds, land prices particularly have been going through the roof, with some properties in prime localities of Doha having been sold for as much as QR 100,000 per square metre and even more.

Meanwhile, second quarter (Q2) corporate results were expected last month and their robustness or otherwise would naturally reflect on the future trend of the bourse, some analysts say. In Q1, for instance, the earnings of banking and financial services sector rose 11.1 percent year-on-year led by the country’s lending giant QNB.

Bellwether Industries Qatar (IQ) in the industrial sector, led to the sector’s 15.4 percent Q1 losses. IQ’s earnings fell by as much as 40 percent due to lower demand of its products. Telecommunications stocks were another sector that witnessed a fall led by a decline in Ooredoo’s earnings.

Analysts hope Qatari stocks may recover after second quarter (Q2) results may begin coming in soon and that would happen provided, of course, no further untoward incident or incidents related to FIFA take place.

One analyst who didn’t want his name in print told BQ that much of the local liquidity flowing into real estate and the falling oil prices in world markets may, though, keep Qatari stocks under some pressure even if Q2 company results are satisfactory.

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