QSE focuses on liquidity, ESG incentives in 2022 amidst rising rate challenge

The Qatar Stock Exchange (QSE), which celebrated its silver jubilee this year, appears to have adopted a strategy of working hard in silence and let success make the noise to the regional and global investment community.
Braving the odds of a hefty 425 basis points interest rate hike so far due to the country’s fixed exchange parity with the US dollar, the local bourse, which is year-to-date down more than 8%, has kept focus intact on improving liquidity and has been on the forefront in devising a strategy to incentivise firms to embrace ESG (environment, social and governance) framework as Doha strives to become an investment destination of choice.
The QSE, which was seen outperforming the regional peers in the Gulf Co-operation Council (GCC) for most part of the year, drew strength from an enabling regulatory and legal environment and infrastructure to improve organic liquidity and help it become a reliable platform for sustainable economic diversification in support of the Qatar National Vision 2030.
The year saw the Qatar Investment Authority (QIA), the country’s sovereign wealth fund, allow the QSE-licensed market makers to access some of its stock inventory, which comes as part of its efforts to attract foreign asset managers as well as to support and develop local economy.
The QIA’s commitment to deepening its capital market is an important step to attracting foreign asset managers to invest in Qatar, and to stimulate retail participation that will help diversify and broaden the market. This QIA-sponsored market making initiative is a first step towards this goal and helps to further develop the Qatari financial markets.
The need for strengthened market makers comes in view of more exchange traded funds or ETFs expected to be traded on the QSE, which is working to attract more listings, introduce more ETFs and derivatives to help investors diversify their portfolios and better manage their investment risks.
The increase of foreign ownership limit in listed companies up to 100% (especially in QNB, Qatar Islamic Bank, Commercial Bank, Masraf Al Rayan, QIIB and Doha Bank); higher levels of market activity; and economic growth and diversification across the wider GCC were recognised as strong regional economic catalysts.
The Qatar bourse, as part of its wider reform strategy, has been working on various initiatives to enhance liquidity in its market and is working closely with the Qatar Financial Markets Authority (QFMA) and the Qatar Central Securities Depository (QCSD) on this important programme.
The QFMA was seen issuing rules relating to covered short selling and securities lending and borrowing (SLB) as part of efforts to increase liquidity and volumes as well as to expand the investment instruments for the investors.
The importance of the new rules is that they add new financial services activities aimed at increasing the volume of activities and businesses of financial services companies, raising the ability of such companies to provide various investment alternatives for market investors.
This contributes to increasing trading volumes and liquidity rates in the market, maximising the returns of stakeholders in the Qatari capital market, as well as broaden the scope of borrowing securities for various purposes, including the establishment of ETF units, executing short selling transactions, or for the purpose of returning previously borrowed securities.
The QSE was seen engaged with various stakeholders to further increase the free float in the market. The major companies' decision to remove foreign ownership limits is part of an overarching plan to enhance access for foreign investors.
The 47 listed companies in the QSE was seen cumulatively reporting QR39.4bn in net profit in the first nine months of this year, showing a healthy 19%-plus growth on an annualised basis.
With Mekdam Holding getting transferred from the venture market to main market and Beema foraying with a direct listing, the new year begins with QSE witnessing the number of listed entities expanding to 49.
Ever since it started operations in May 1997, the QSE, has over the years been transformed into rules-based, reliable and resilient market operating in line with the best international practices. It has played a central role in the growth and development of Qatar’s financial industry, building the breadth and depth of the market, driving quality and attractiveness as a listing, trading and investment destination.
The year 2022 also saw the QSE enter into an agreement with the London Stock Exchange Group (LSEG) whereby the Qatari bourse will receive the latter's trading and market surveillance technology.
The new QSE solution will be based upon LSEG’s financial markets product suite, a robust, scalable, and high-performance technology offering, which includes trading, market data, data analytics, and market surveillance.
"It enables us to deliver even greater value as well as offering new products and services to a whole new range of potential clients and participants in the derivative and equity capital markets arena," said Aisha al-Mahmoud, QSE’s IT Director.
The year saw QSE in talks with an asset manager to launch an ESG fund that will eventually incentivise companies to better embrace the sustainability framework, as Doha strives to become an investment destination of choice for ESG-sensitive investors globally.
"We are now working on potentially launching a fund here in Qatar to incentivise everybody to pay more attention to ESG aspects," QSE director (Products and Market Development) Mohsin Mujtaba had said.
For the last six years, ever since the ESG guidelines were launched, the focus has been more on the corporate side, encouraging them to disclose more.
As much as 30% of the listed companies are actively reporting ESG data and 43% of them are rated by global data providers, he said, adding 90% of the market-capitalisation is rated, which according to Mujtaba, is "a good achievement" in a short span of time.
From a regulatory point of view, he said, the bourse has initiated talks with large asset owners who are fully behind the ESG index, which was launched last year in collaboration with MSCI Inc, a leading provider of critical decision support tools and services for the global investment community.
On a micro-level, the year saw the Group Securities commence the market making for the stocks of QNB, Industries Qatar, Masraf Al Rayan, Woqod, Commercial Bank, QIIB and Qatar Electricity and Water Company.
QNB Financial Services not only started market making for Industries Qatar, Masraf Al Rayan and Woqod but also entered into a liquidity provision pact for Estithmar Holding and Doha Bank-sponsored QETF. Wasata Financial Securities was seen providing market making service for Qamco and Baladna.
The latest update in 2022 saw as many as 43 constituents, which include two exchange traded funds, become eligible for the margin trading, market making and liquidity provision activities.
The Group and QNB Financial Services were seen cornering about 70% of the trade turnover (at the end of 11-month ended November).
On the international front, the QSE signed a pact with Astana International Exchange, whereby both parties will facilitate information and knowledge exchange regarding market operations within the respective legal and technical framework, joint research and educational initiative.
In the debt market, the QSE witnessed listing and trading of treasury bills every month of varying sizes and lots.
In its efforts to give back to the society, the QSE and the Community College of Qatar were seen entering into a memorandum of understanding to develop awareness courses/workshops to be provided by QSE to the CCQ students pertaining to the QSE’s market and operations, as well as training the students using QSE’s trading simulation programmes and introducing them to safe investment methods.