Choppy markets ahead?

Qatari shares are likely to maintain a reasonable level in 2015 even if the decline in oil prices continues says QE.

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May 2014 was coming to an end, May 29, a Thursday, was the last trading day of the month. Trading on the buoyant Qatari stock market, Qatar Exchange (QE), ended on a very encouraging note on this day. The benchmark index had soared 276 points to beyond 13,694 points. There were a record 22,170 deals concluded on the market (QE) with a trading value that totalled a historic QR 4.58 billion (USD 1.25 billion) with volumes breaking a record 76 million shares. Market capitalization, or investors’ wealth, was at an all-time high of QR 736.87 billion.

The historic rally on 29 May was thanks to foreign institutional investors (FIIs) whose buy volumes on the day had reached over 45 million shares worth a staggering QR 3 billion, accounting for a lion’s share in the day’s total trading value of QR 4.58 billion.

The buoyancy wasn’t surprising, as a few days later, early in June, Qatar Exchange was to be conferred the coveted Emerging Market status by the MSCI along with Dubai’s equity exchange. Qatari shares were going to be in high demand by global institutional investors of repute who track emerging market stocks with billions of dollars in their deep pockets.

Oil prices affected stocks

But roughly a month later, on 25 June, 2014, a Wednesday, all indicators on the Qatari share market were pointing to a scenario that wasn’t optimistic at all and rather belied the hopes of investors as reflected in their trading sentiment on 29 May.

The main index, on 25 June, was down to an unbelievable 12,101 points, shedding 1,593 points, or more than 10 percent, in less than a month. The market capitalisation had slid to QR 657.1 billion (USD 180.44 billion), having lost QR79.77 billion in barely 20 trading days.

So what went wrong in this brief period of a little over three weeks? The answer: June was when global oil prices began falling hitting stock trading sentiment in oil and gas exporting countries hard. Panic selling in the first half of December 2014 by retail investors particularly, as oil prices tumbled below USD 60 a barrel for the first time since July 2009, led to fears that Qatari and other stocks in the region may take further hits.

“People sell whatever they can…..irrespective of valuations,” Reuters quoted a Bahrain-based stock analyst, Shakeel Sarwar, as saying, in the second week of December 2014, about the oil-triggered sell-off.

Eight months have passed since June 2014 and, not surprisingly, the major indicators on the Qatari equity exchange remain almost unchanged. On 5 March, 2015, for example, the benchmark index of Qatar Exchange was 12, 139.42 having lost 306 points in a week since February-end. Investors’ wealth, or market capitalisation, was QR 660 billion on this day, having fallen from QR 675 billion a week before that.

Although corporate earnings of the listed entities are not likely to be hit hard by falling oil prices, the development is expected to maintain pressure on Qatari stocks this year as well. The CEO of Qatar Exchange, Rashid Al Mansoori, told local media in March, striking a cautious note, that Qatari shares were likely to maintain a “reasonable” level in 2015 even if the decline in oil prices continued.

Some analysts say they expect the first quarter (Q1 of 2015) financial results of the Qatari companies to provide an indication as to where their profitability is headed to. Analysts are not hopeful of oil prices recovering this year to earlier levels. The rates are expected to move within a band of USD 60 to USD 70 a barrel this year as also in the next.

H.E. Abdullah bin Hamad Al Attiyah, currently head of Qatar’s anti-corruption watchdog and a former oil minister who has headed OPEC several times, said early in March he expected crude prices to vary between USD 60 and USD 70 per barrel in 2015 and 2016. In remarks to reporters at an event at Qatar University he said oil prices were falling because the US had begun exports after 30 years and that some two million barrels of surplus crude were in the market daily amid lower global demand.

QE to launch more funds

This year, expected to be launched on the Qatar Exchange (QE) are exchange-traded funds (ETFs), a few investment funds in which corporate as well as retail investors could trade, and a junior market on which are to be listed small and medium-sized companies. Al Mansoori told local media in February that in 2015 some new listings were also expected.

As is known, Mesaieed Petrochemical Holding Company (MPHC), which was listed on the QE in January 2014, was the 43rd entity to be listed on the QE after several years of wait. Interestingly, despite the fact that Qatari shares took a beating in 2014 due to falling oil prices (that also affect gas prices), global investors were quite bullish about these stocks.

The FIIs, global fund managers, among them the large pension funds, raised their stakes in several Qatari companies in the year.

This followed Qatar passing a law in the year to raise the limit on foreign ownership in listed companies to 49 percent of their capital.

Telecom service provider, Vodafone Qatar, consumer chain Al Meera, and utility producer Qatar Electricity and Water Company, popularly known as Kaherba, saw foreign ownerships raised in 2014. The other companies that benefited from the 2014 foreign ownership law included QNB, Qatar Islamic Bank (QIB), Gulf Warehousing Company, Commercial Bank of Qatar, Doha Bank and Islamic Holding.

A local daily, while reporting the above, quoting an expert said that at a time the world economy was witnessing volatility due to ongoing financial uncertainty in the Eurozone and slowdown in China, global investors had fewer options to invest. The daily, though, added that things might change if crude prices keep tumbling and the profitability of Qatari companies are hit. That, only time will tell.

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