New frontiers

In a nation that holds a host of investment possibilities, exchange-traded funds will also be a good bet.



Stock market

In the middle of last May, Qatar’s stock exchange conducted a symposium on exchange-traded funds (ETFs) to create awareness about these products and the event brought together global ETF experts, local asset managers as well as investors and regulators.

The debate was mainly on the potential of ETFs in Qatar, although their scope in the wider GCC region was talked about, too. This was not the first time the administration of the Qatari bourse (Qatar Exchange) was holding an awareness programme on ETFs in collaboration with some partners. Such discussions have become a common feature and have been going on now for years.

Critics say they have been hearing about ETFs being launched on the Qatari bourse for a long time without the listing being anywhere in sight. As is customary, bourse officials usually end such debates on an apologetic note and say they are still awaiting approval from the regulators, the Qatar Financial Markets Authority (QFMA), to launch ETFs.

This event was no exception as the QE’s CEO, Rashid Al Mansoori, repeated those very familiar words people were expecting. He said approvals from the regulators were not yet forthcoming to list the ETFs. And like always, QE officials, in their presentations, went on defining ETFs rather than telling the participants what kind of ETFs were being listed on the QE.

Mohsin Mujtaba, director of Products and Market development, QE, talked generally about ETFs with no Qatar-specific details, disappointing those present. “ETFs provide investors with the ability to buy the index through a single trade on the exchange,” Mujtaba said.

Suppose an investor (retail or corporate) wants to track QSE (Qatar Stock Exchange) 20 Index, or Al Rayan Islamic Index, he could buy ETFs tracking those indices by placing just one order through his broker, said Mujtaba.

However, since there are no ETFs listed on the QE tracking the above indices, the investors, in order to track QSE 20 Index, for instance, must place 20 separate orders for those shares with the right proportion

(based on the weight of a particular stock which is part of the Index). And the purchases should be done at the right prices, which would need experts to execute such tasks, the QE official said.

BQ will put it simply: If A is an investor on Qatar Exchange and he has a portfolio of six of the 43 listed shares and his stocks have gained 7 percent in a year while the QSE 20 Index (the main benchmark 20-share index of QE) is up by 11 percent, A has lagged behind.

But if he had invested the same amount (let us say, QR 50,000 or USD 13,730) for which he bought the six shares, in an ETF which was tracking the QSE 20 Index, the investor would have made a larger profit (11 percent).

Why ETFs are good

ETFs are like a portfolio that track the yield and return of the index they track. Such an index is called the index native to an ETF or simply native index. So ETFs are like mutual funds that are basically index funds. They are also called index trackers. They are basically an investment fund.

Tracking the yield and return of an index means the ETF is trying to ensure that the yield (dividend income, etc.) of a stock which is part of that index and its capital appreciation (return, or year-to-date return, or increase in the value of a share) are maintained. As a matter of rule, ETFs don’t outperform a native market because they strictly track the index.

Some international ETFs are those that track the S&P 500 Index (of US stocks), Nikkei 225 (the stock market index for the Tokyo Stock Exchange) and the FTSE 100 Index, which tracks the London Stock Exchange (LSE).

The numbers suffixed to all the above indices, for example, FTSE 100, refer to the number of shares these indices track. FTSE, for instance, tracks 100 top shares, by market cap, listed on the LSE.

As mentioned earlier, Qatar Exchange has the main benchmark index which is a sensitive index of 20 of the 43 stocks listed on it. Then, there are the other indices as well: a Total Return Index, Al Rayan Islamic Index, followed by sector-specific indices.

ETFs can be launched for all of them, but the problem, according to analysts, is that some sectors have just two to three shares listed under them. The telecom and transport sectors are good examples.

The banking and financial services sector has the largest number of stocks (11) listed under it followed by the industrial counters that have nine shares listed. Consumer sector has eight shares while the insurance counters have five stocks listed under it.

Now, as for the movement of these indices, looking at the past 50 days (from 1 April, 2015 to 21 May, 2015) it is seen that the QSE 20 Index gained 912.48 points (from 11,531.01 to 12,443.49) in the period.

This represents almost 8 percent growth. This, in simple terms means that the stocks have gained eight8 percent in value in those 50 days. The market capitalisation of the QE also rose from QR 624.49 billion (USD 171.5 billion) on 1 April, 2015 to QR 661.97 billion (USD 181.78 billion) on 21 May, showing a gain of QR 37.48 billion (USD 10.29 billion).

In the period all other indices, including those representing the various sectors, except the telecom sector’s, were up.

To check if the index gain in those 50 days practically led to gain in the share value of some stocks, let us take as examples large cap stocks like QNB, Qatar Islamic Bank, (QIB) Qatar Fuel (Woqod), Al Meera, Industries Qatar (IQ) and Qatar Electricity and Water Company (QEWC).

On 1 April, 2015 QNB was priced at QR 189, QIB (QR 98.20), Woqod (QR 179.66), Al Meera (QR 211.43), IQ (QR 138.53) and QEWC (QR 194.67). Fifty days later, on 21 May, 2015, the QNB share price was QR 198.50, QIB (QR 105.20), Woqod (QR 179.70, only negligibly up), Al Meera (QR 247.62), IQ (QR 142) and QEWC (QR 215.10) – all of them up.

In the above 50-day period one stock that almost doubled in value was Qatari German Company for Medical Devices. Their shares were up from QR 10.69 on 1 April, 2015 to QR18 fifty days later, gaining 80 percent in value. If there were ETFs tracking the QSE 20 Index, investors would have gained hugely in the above 50 days. But alas! So far there are no ETFs listed on the QE. There is the hope, though!!



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