Visitors stand at information desks inside the Qatar Exchange in Doha (file). The consumer goods, industrials and telecom sectors witnessed two-digit appreciation, indicating the strong outlook for them. It also underscores the fact that the future of energy-rich Qatar lies in the non-hydrocarbon segments.
By Santhosh V Perumal/Business Reporter
Having laid solid foundations, NYSE Euronext reduced its exposure to the Qatar Exchange, which somehow, lost yet another chance in 2012 to make it to the “emerging” market status on the global index compiler MSCI Index despite making efforts to streamline the process and procedures.
Although the US “fiscal cliff,” the lingering eurozone crisis, and to some extent Arab Spring, did play spoilsport, the New Year appears to be promising for both stock and debt markets.
In 2013, the stock market is expected to witness the advent of margin trading and lending and borrowing of securities, while in the debt market, now at a very nascent stage, Qatar is all set to establish a credit rating agency for domestic non-government entities wishing to tap debt market.
It seemed to be a slip between the cup and lip for the fastest growing Qatar when MSCI extended the deadline further in June to review Doha bourse’s position from the present “frontier” status.
The issue of foreign ownership limits appears to have gone against an expected upgrade, which would have entailed an additional $1.5bn-$4bn foreign funds inflow, although the QE, which witnessed a change of guard, has steadfastly been implementing multi-pronged reforms aimed at elevating its status to a natural choice for investments in the Gulf region.
A Global Investment House study found that more than 85% of the listed companies on the QE do not have foreign ownership that is commensurate with the allowed limits and only 29% have the maximum limit of 25%.
The QE has been in the watch list for the last five years and the exchange has done all that is required in terms of infrastructure with the latest being the introduction of delivery-versus-payment system (DvP), according to Mohsin Mujtaba, director (products and market development) at the QE.
The bourse, whose new DvP system came into force as the first step towards enhancing post trade infrastructure, is working out the modalities to allow securities lending and borrowing, margin trading and covered short selling as part of its liquidity boosting measures. They should go well down with international investors, who are now eyeing the Qatari bourse in a big way.
The Qatar Financial Market Authority (QFMA), which will be one of the axes of the proposed single financial regulatory regime, issued four new regulations on financial services, covering liquidity providers, lending and borrowing of securities, rules of guaranteed entry to market’s standards and rules for listing units of investment funds.
“These regulations came following the analysis and study of the Qatari market’s current needs and requirements, and will help improve the market’s efficiency, performance and depth, increase the level of liquidity, as well as expand the investment base and prospects in the local climate and will achieve the desired goals,” according to Nasser Ahmed al-Shaibi, CEO of QFMA.
The year 2012 also witnessed the bourse launch two new barometers – the Total Returns Index and the All Share Index, both of which factored in dividend incomes as well, as part of expanding the benchmarks range to attract global investors, fund houses and portfolio managers.
The latest index revision in 2012 saw Qatari Investors Group and Mazaya Qatar in place of Al Meera Consumer Goods and Qatar Insurance Company.
Moreover, the bourse also imposed a 15% cap on an individual company’s weight in its existing and new 20-stock indices from April 1 as part of diversifying the portfolio.
The year also saw the introduction of new sectors such as consumer goods, real estate, telecom and transport. In all, there are seven sectors, including banks and financial services, insurance and industrials with many entities being reshuffled.
Overall, the market was in a negative territory compared with many of its Gulf peers, which reflected the global concerns that stemmed from the lingering eurozone crisis and the uphill task to avoid US fiscal cliff.
“The slight gains enjoyed through to April have been more than offset by subsequent declines,” the General Secretariat for Development Planning (GSDP) said. Trading — value and volume — has nevertheless been on a rising trend, and the market has been deepening.
The silver lining was that the consumer goods, industrials and telecom sectors witnessed two-digit appreciation, indicating the strong outlook for them, amplified by the fact that the future of energy-rich Qatar lies in the non-hydrocarbon segments, a fact that has been corroborated by the Qatar Economic Outlook by GSDP.
“We see quite substantial upside for Qatar,” Mark McFarland, emerging markets strategist with Emirates NBD Private Banking, had told Gulf Times, adding that the earnings-per-share projection for the Qatari bourse showed double-digit growth for 2012, which is “symptomatic of investors upping their expectations” despite Arab Spring.
“In the years ahead, we will continue to see the share of the non-oil and gas economy in total output steadily rise and with this shift there will also be less fiscal dependence on oil and gas revenues,” according to GSDP secretary general Saleh al-Nabit.
The successful bid for the 2022 FIFA World Cup also brought with it the need for further capital expenditure over and above the budgeted $150bn for the next five years. Various estimates put the additional expenditure (in preparation for the World Cup) to the tune of $50bn-$100bn. The GSDP had substantially upped its estimate on Qatar’s capital expenditure for 2011-16 to $138bn from its June estimate of $95bn.
Already, the listed companies have embarked on fortifying their capital bases as they strengthen their domestic and overseas markets. As many as five companies announced their rights issues, the largest of which came from Qatar Telecom with a mammoth QR6.86bn offer.
Ahlibank Qatar had raised QR672.75mn, Alijarah QR486.55mn and Mannai Corp QR684.29mn, while Milaha (Qatar Navigation), which was supposed to raise QR1.31bn, later terminated its offer.
“Rather than resorting to refinance the past liabilities, the companies, which have (so far) gone in for rights issue, are investing to enhance their future business, which itself shows the confidence in the market amidst global uncertainties,” an analyst with a leading brokerage firm said.
Entities such as QNB, Qatar Telecom, Al Meera Consumer Goods and Mannai Corp had acquired overseas assets in 2012 as part of expanding their footprint in the global markets.
On the profitability side, the cumulative net profits rose only 1.88% in January-September this year against a stupendous 21.98% growth in the previous-year period with two of the five sectors registering a fall in their net profits. The cumulative net profit stood at QR28.53bn compared to QR28bn in the year-ago period.
The QE also established a separate stand-alone junior bourse for small and medium enterprises ‘QE Venture Market’ stipulating eased entry norms as well as lower capital base and shareholders.
The QE, with a market capitalisation (M-cap) in excess of $130bn, has witnessed a more than 93-fold jump in total stocks trading volume in 15 years and is gearing up to introduce exchange traded funds (ETFs) and establish a central counterparty (CCP), which will enable trading in multi currencies.
The market regulator QFMA had allowed banks to re-enter the brokerage business, which according to the former QE chief executive Andre Went, has many advantages and benefits for the exchange and the investors in respect of attracting foreign investment portfolios and enhancing confidence of international investors in the Qatari market.
Already investors across the US, Europe and Asia are now able to access the QE with SIX Telecurs, a leading global financial information provider, making available live trading data from the Doha’s bourse. The real time service, featuring last trade and full order book data, is sourced via the QE’s secure financial transaction infrastructure network, which is backed by Qatar Telecom and NYSE Euronext Technologies.
DirectFN, a provider of comprehensive brokerage solutions for the Middle East and South Asia, confirmed that it received certification for its latest order management system (OMS) for ‘FIX Order Routing and Feed Processing’ from the QE via its NYSE Euronext platform.
On the debt market, the trading was by and large nil since treasury bills were intended to institutions. However, indications are that once the required critical mass is achieved, corporate papers will soon find their way.
In this regard, Qatar is establishing a credit rating agency for domestic non-government entities wishing to tap debt market, probably a first-of-its-kind in the Middle East, as part of efforts to put in place the required institutional framework for developing the country’s capital market.
“We believe this is positive for corporate financing, given the large size and long-term nature of upcoming infrastructure projects,” Perihan El Husseini of Beltone Financial said.
The bourse has also undertaken measures to streamline the corporate governance practices and as a prelude, it came out with a survey to assess the weaknesses in the system.
The bourse found 80% of its listed companies have or are in the process of establishing a dedicated investor relations (IR) department, a move that is seen to be a yardstick of good corporate governance.
Although there is a clear regulatory imperative to keep the market informed on a company’s business, QE director of listings Abdelaziz al-Emadi said the regulatory disclosure should be seen as the bare minimum and listed companies should have a very clear idea as to why a particular fund manager should buy their company’s stock.