Investor wealth or market capitalisation, a measure of liquidity on the exchange, was down by a substantial QR 30.37 billion (USD 8.4 bn) in a single trading day. It had fallen to QR 569.38 bn (USD 156.35 bn).
A majority (37) of the 43 shares fell and all the 12 stocks from the stronghold banking and financial services sector were among the losers. At least three of the 43 listed stocks shed 10 percent of their value – the maximum allowed for a share to fluctuate either way, up or down, on a single trading day. The stocks were Islamic Holding, state-backed Qatar Meat and Livestock Company popularly known as Widam (formerly Mawashi) and Gulf International.
China slump should not affect Qatari stocks
Analysts described the sudden and shocking slump as a result of what was happening in China and elsewhere in the world. “It is a knee-jerk reaction,” said Abdullah Al Khater, a known economist and financial and stock analyst. Market fundamentals in Qatar remained strong, he said in comments published by a local daily.
In the two days of trading, on 23 and 24 August, Qatar Stock Exchange’s main index lost 773 points, or 6.9 percent, and saw QR 41 bn (USD 11.26 bn) of its market capitalisation, or investor wealth, vanish. The capitalisation was down to QR 558.7 bn (USD 153.42 bn). One corporate head cried foul at the sudden slump. Nasser Al Khaledi said Qatari stocks should not have been affected by what was happening in China and elsewhere in the world because the country’s economy remained resilient enough and company earnings were high.
“Qatari companies are profitable and have enough liquidity,” Al Khaledi, CEO of Qatar-Oman Investment Company, a publicly-traded company, said.
He attributed the index loss to what he said were manipulations by foreign investors. In remarks published by the same local daily, he said foreigners were allowed to own up to 49 percent equity in Qatari listed companies, which was not a wise and welcome move. “Qatar is a small country, so it shouldn’t have opened up its equity market to foreign participation to that extent to which it has. The move is fraught with danger because there is no strict monitoring by the regulatory authorities,” the CEO said.
“Where are the controls?” he asked, wondering what the bourse regulator, the Qatar Financial Markets Authority (QFMA) was doing to make sure that the market was free of manipulations. However, he did not cite any particular instance of manipulation by foreigners but said that local shareholders and stock traders were left victimised while their foreign counterparts felt privileged.
Qatari corporate earnings in the first half of the year were indeed impressive and considering the high profitability of the companies a slump of the kind that was witnessed on 23 August especially, was unexpected and surprising, analysts said. According to a Kuwait Financial Centre’s report released late in August, Qatar was the only country in the GCC where corporate earnings were up and in double digits too, by 13 percent, in the first half of the year over the same period in 2014.
Qatari listed companies reported combined net profits of USD 6.61 bn in H1, up from USD 5.82 bn in the first half of 2014.
The figure in the second half of 2014 was USD 6.53 bn, Kuwait Financial Centre, known as Markaz in brief (the Arabic word meaning ‘centre’), said in its report.
The H1 2015 financials of the Qatari companies were robust in spite of falling world oil and natural gas prices. So a stock slump as steep as the one seen in August was even more surprising, said analysts.
Corporate earnings elsewhere in the GCC region fell in the period (H1 of 2015), led by Kuwait and Saudi Arabia, the largest Arab economy and the biggest equity market of the region. The decline in the corporate earnings of Saudi companies was 16 percent to USD 14 bn, while in Kuwait, it was almost a nosedive (the fall being 19 percent) to USD 2.39 bn.
Company profits in Oman fell seven percent while in Bahrain, the dip was five percent. The UAE witnessed a two percent drop.
All the listed companies of the GCC put together reported combined net profits of USD 34.41 bn in the first half of 2015, which represented a seven percent fall year-on-year. The earnings were USD 37 bn in the first half of 2014, which was down to USD 32.8 bn in the latter half of the year (July to December 2014).
Markaz, in its extensive analysis, attributed the drop in the region’s corporate earnings to a mix of factors, among them falling crude prices, a strengthening US dollar and company-specific issues.
The region’s earnings were mainly driven by the banking sector and real estate players, Markaz noted in its report. Nearly half the region’s net profits, USD 16.7 bn, were reported by banks alone, showing an increase of nine percent year-on-year.
The profits of regional real estate companies came nowhere near those of the banking industry’s, but being USD 3.7 bn, they recorded a growth of an incredible 44.5 percent on a yearly basis. Real estate companies put up an impressive performance in the first half in Qatar, Abu Dhabi and Dubai and due to liberalization of rules in Saudi Arabia and increased mortgage lending.
The region’s corporate earnings are expected to improve a bit and fall only marginally by 2015-end, Markaz said, adding that they may likely total USD 69.7 bn.
Company profits in Qatar may possibly breach the USD 14 bn-mark by the end of the year, analysts say.
No bubble in the market
Qatari stocks did improve as August came to a close. On 27 August, when the market closed for the weekend, the shares showed some recovery. The benchmark index limped back to breach the 11,000 points barrier and was ruling at 11,295.46, while the market capitalisation at the close of trading on the day was reaching the August 20 level of slightly under QR 600 bn.
“There is no bubble in the market. All Qatari stocks remain fairly valued,” said Abdullah Al Khater, adding that investors therefore, must not push the panic button. The stocks are only expected to improve as the days pass, he said.
And as for company earnings, the indications are, that they will continue to be strong as the national economy is being propelled by increased public spending on development projects for the 2022 FIFA World Cup, analysts say.