Kuwait Financial Centre “Markaz” R E S E A R C H Qatar Stock Market Outlook, 2016 Outlook - Neutral Expectations 2016 Current Expectations UAE Economic Factors Neutral Valuation Attraction Positive Earnings Growth Potential Neutral Market Liquidity Negative Overall Market View Neutral Source: Markaz Research We were positive for Qatar in our last year assessment. However, the sudden and persistent decline in oil prices resulted in Qatar’s stock index tanking by 15% during 2015. The decline in index levels has made valuations attractive but our expectations for earnings growth remains flat for the year ahead. Despite the emerging market status, prevailing negative investor sentiments amid declining commodity prices, especially gas, could work against Qatar in the medium term. Low oil prices have completely shifted the balance of the global economy. Almost all of the GCC countries have to live with the low oil prices that are considered the new normal. This prolonged decline in prices have resulted in most international agencies such as IMF and IIF to reduce their growth forecasts for Qatar at 4.9% and 4.3% respectively (real GDP growth) for 2016 in view of lower revenues from gas and allied industries and government spending cuts. Going forward, we evaluate the attractiveness of the Qatar stock market based on four-factor model. Valuation: Positive Price-to-earnings multiple for Qatar has fallen by 25% and currently stands at 11.1x. Qatar market is relatively undervalued when compared to the markets of Saudi Arabia and Kuwait. Investor interest in the market waned post 2014 owing to poor international conditions. Qatar also has the highest dividend yield in the region at 5.1%. Telecom and Industrial indices were worst affected, falling by - 33.6% and -21.1% respectively. Earnings: Neutral We expect corporate earnings growth to be slightly negative in 2016. Earnings are expected to slightly reduce as infrastructure spending peaks. Real estate and commodities sector in Qatar are expected to be worst hit with their earnings expected to decline by -10% and -15% respectively. Declining oil and gas prices could affect the commodities sector. Real estate firms in the country witnessed a sharp correction in the 2 nd half of 2015 which could continue into 2016 as well. Earnings from the telecom sector are also not expected to increase given the decline in ARPUs and maturing markets. Hence, we have a neutral view on earnings for Qatar. January 2016 Research Highlights: Analysis of Qatar’s stock market performance in 2015 and providing outlook for 2016 based on four-factor model. Markaz Research is available on Bloomberg - Type “MRKZ” <Go> Thomson Research, Reuters Knowledge Nooz Zawya Investor ISI Emerging markets Capital IQ FactSet Research Connect TheMarkets.com M.R. Raghu CFA, FRM Head of Research +965 2224 8280 [email protected]N. C. Karthik Ramesh Manager - Research +965 224 8000 Ext : 4611 [email protected]Rakesh Khanna Analyst +965 2224 8000 Ext: 4612 [email protected]Kuwait Financial Centre K.P.S.C “Markaz” P.O. Box 23444, Safat 13095, Kuwait Tel: +965 2224 8000 Fax: +965 2242 5828 markaz.com
37
Embed
Kuwait Financial Centre “Markaz” - Amazon Web Servicesargaamplus.s3.amazonaws.com/9f7db4e2-16f3-44a4-9bbe-aebc32dfb… · Kuwait Financial Centre “Markaz ... Thomson Research,
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Kuwait Financial Centre “Markaz” R E S E A R C H
Qatar Stock Market Outlook, 2016
Outlook - Neutral
Expectations 2016
Current Expectations UAE
Economic Factors Neutral
Valuation Attraction Positive
Earnings Growth Potential Neutral
Market Liquidity Negative
Overall Market View Neutral
Source: Markaz Research
We were positive for Qatar in our last year assessment. However, the sudden
and persistent decline in oil prices resulted in Qatar’s stock index tanking by 15%
during 2015. The decline in index levels has made valuations attractive but our
expectations for earnings growth remains flat for the year ahead. Despite the
Qatar index, which was majorly flat until June 2015, started declining in the
latter half of the year. GCC markets were rocked by the fall in Chinese equities
which resulted in region wide selling. Uncertainty over oil prices and political
situation in the region only helped to exacerbate the problem. Qatar market fell
sharply in November 2015; Qatar lost -13.0%.
In Qatar, Telecom and Industrials indices lost 33.6% and 21.1% respectively.
Ooredoo QSC, which is Qatar’s largest telecom operator in terms of market
capitalization, fell by 40% during 2015. Ooredoo Qatar had registered total
earnings of $207.64 Mn during the first 9 months of 2015 (doubling its net profit)
helped by improved profit margins and sale of stake in Philippines Company Wi-
Tribe. However, the Trailing twelve months (TTM) Earnings per share (EPS) fell
from QAR 7.9 last year to QAR 5.7 currently due to the performance in Q4 2014
which was badly hit on account of foreign exchange losses in Indonesia and
higher operating costs in Myanmar and Algeria2. Despite the increase in profits
over the last three quarters, Ooredoo’s performance was dismal at the stock
market owing to mobile saturation in major markets such as Kuwait and Qatar.
Ooredoo’s investment in Iraq is under threat due to geopolitical developments.
Ooredoo’s PE (TTM) ratio fell from 15.7x at the end of 2014 to 11.7x at the end
of 2015. The fall is primarily attributed to the fall in the share price (-40%).
However, the fall in PE would have been greater if not for the poor financial
performance in Q4 2014.
Transportation, Real Estate and Insurance were the only sectors to achieve
positive returns during the year gaining 4.9%, 3.9% and 1.6% respectively.
Among transportation stocks in Qatar market, Gulf Warehousing Company gave
the highest return during the year at 10.53%. The positive performance in the
stock market was driven by the steady rate of growth in its net profits in the first
nine months of 2015. GWC witnessed 31.9% increase in net profits compared to
the same period last year. The company’s sports logistics activities, Equestrian
logistics and art partnership all had a very active 3rd quarter. GWC is also
expanding rapidly at Logistics Village Qatar and at Ras Laffan Industrial facilities.
Qatar insurance was the only company in the insurance sector to end 2015 on a
positive note with 4.08% increase in share price.
2 Reuters
GCC markets were rocked by
the fall in Chinese equities
which resulted in region wide
selling.
Ooredoo’s performance was
dismal at the stock market
owing to mobile saturation in
major markets such as Kuwait
and Qatar.
Qatar insurance was the only
company in the insurance sector
to end 2015 on a positive note
with 4.08% increase in share
price.
MARKAZ RESEARCH
Qatar Stock Market Outlook 2016 - January 2016
Kuwait Financial Centre “Markaz” 4
Qatar Index, Sector-wise, 2015
Source: Reuters
Banking and Industrial sector stocks account for almost 61% of the market
capitalization of the Qatar index.
Qatar Stock Index, Sector-wise weights, 2015
Source: Qatar Stock Exchange
Qatar National Bank (QNB), which is the largest lender in the GCC region and is
the largest company listed on the Qatar stock exchange, achieved a 6.1 percent
increase in third-quarter net profit. The bank made a net profit of $854 million in
the three months to Sept. 30, up from $791 million a year before. Lending
growth in Qatar is a significant driver of banking profits, propelled by large
government spending on infrastructure ahead of the state's hosting of the FIFA
World Cup in 2022. Bank credit growth in Qatar accelerated to an annual 15.0
percent in August, the fastest rate since February 20143. Qatar Islamic bank
which is the 3rd largest bank in Qatar in terms of market capitalization generated
a nine-month net profit of $38 Mn, up from $30Mn a year earlier (an increase of
3 Qatar Central Bank
-15.1%
4.9% 3.9% 1.9%
-12.4%
-13.1% -21.1%
-33.6%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
Qata
r Index
Tra
nsp
orta
tion
Real E
state
Insu
rance
BFSI
Consu
mer G
oods
Industria
ls
Tele
com
39%
22%
17%
6% 6%
5% 4% Banks & Financial Services
Industrials
Real Estate
Transportation
Insurance
Consumer Goods and Services
Telecom
Bank credit growth in Qatar
accelerated to an annual 15.0
percent in August, the fastest
rate since February 2014.
Industries Qatar, one of the
bell-weather stock in the Qatar
stock exchange, fell by 33.87%
in 2015.
MARKAZ RESEARCH
Qatar Stock Market Outlook 2016 - January 2016
Kuwait Financial Centre “Markaz” 5
26%). The bank's net fee and commission income over the same period was $93
Mn, 19 percent higher than a year ago. Qatar Islamic bank has gained 4.4%
during 2015.
Industries Qatar, one of the bell-weather stocks in the Qatar stock exchange, fell
by 33.87% in 2015. Industries Qatar group recorded strong financial results
across all segments during 2015 amidst the current economic environment as
the sales volumes grew in excess of 12% following the return to normal
operations of most of the group’s productions facilities which were on extensive
maintenance during the first half of 2014. Selling prices in the petrochemical and
steel segments were impacted significantly due to the prevailing low oil prices.
Net profit for the 9 month period was $ 1.02 billion, down by $ 243 Mn or 18.8%
against the same period in 2014.
Qatar Electricity and Water was the only stock in the industrial sector to end the
year on a positive note gaining 15.41%. The utility firm made a nine-month net
profit of $307 Mn, down from $315 Mn in the same period of last year.
Large Cap4
Top Gainers-Large Cap
Company Sector M Cap
(USD mn) Last
Close
YTD returns (in %)
P/E P/B Div
Yield Beta ADTV5
Qatar Electricity and Water Co QSC
Utilities 6,536 216.4 15% 15.9 3.4 0.85 3.5 High
Al Meera Consumer Goods Co QSC
Consumer Non-
Cyclicals 1,208 220 10% 21.7 3.3 0.92 4.1 High
Ezdan Holding Group QSC Financials 11,581 15.9 7% 26.9 1.4 1.48 2.5 High
Qatar Islamic Bank SAQ Financials 6,923 106.7 4% 13.4 1.7 1.13 4.0 High
Qatar Insurance Co SAQ Financials 4,157 82 4% 16.0 2.7 0.79 2.7 High
Source: Reuters; ADTV – Average Daily Trading Volume
Qatar Islamic Bank (QIB) made a nine-month net profit of 1.41 billion riyals, up
from 1.13 billion riyals a year earlier. Nine-month income from financing and
investing activities was 2.8 billion riyals, up 24 percent year-on-year. Qatar
Insurance reported a 20 percent fall in net profit for the third quarter. Qatar
Insurance recorded a net profit in the first nine months of 2015 of 693 million
riyals, down from 780 million riyals (-11%) in the same period of 2014. Ezdan
holdings generated a profit of 1.2 billion riyals (20% growth) in the first nine
months of 2015, up from 1 billion riyals in the corresponding period of last year.
Top Five Decliners-Large Cap
4 Stocks listed in Qatar with market capitalization value of greater than USD 1,000mn have been considered as large caps for our analysis
5 ADTV Rating: High- Greater than USD 50,031; Low- Less than USD 31,270 & Average - Rest
MARKAZ RESEARCH
Qatar Stock Market Outlook 2016 - January 2016
Kuwait Financial Centre “Markaz” 6
Company Sector M Cap
(USD mn) Last
Close
YTD returns (in %)
P/E P/B Div
Yield Beta ADTV
Gulf International Services QSC
Industrials 2,628 51.5 -47.0 6.6 2.4 10.7 1.30 High
Ooredoo QSC Telecommunications Services
6,597 75 -39.5 13.2 1.1 5.3 1.02 High
Mesaieed Petrochemical Holding Co QSC
Basic Materials 6,692 19.4 -34.2 20.2 1.8 5.7 0.00 High
Industries Qatar QSC
Industrials 18,457 111.1 -33.9 12.3 2.0 6.3 1.00 High
Qatar Fuel QSC Energy 3,421 147.5 -27.8 10.7 1.9 6.1 0.60 High
Source: Reuters
Ooredoo QSC, which is Qatar’s largest telecom operator in terms of market
capitalization, fell by 39.47% during 2015. Mesaieed Petrochemical Holding
Company (MPHC) generated a net profit of QR786.19 million for the first nine
months of 2015, down 34.29% year-on-year. The year-on-year decrease in
earnings was a result of a number of maintenance shutdowns combined with
slowdown in global oil prices. Masraf Al Arayan’s net profit for the nine months to
Sept. 30 was 1.51 billion riyals, compared with 1.43 billion riyals in the same
period a year ago. Financing activities for the nine-month period reached 59.9
billion riyals, up by 9.2 percent from the same period in 2014.
Mid Cap6
Top Gainers7-Mid cap
Company Sector M Cap
(USD mn) Last
Close
YTD returns (in %)
P/E P/B Div
Yield Beta ADTV
Gulf Warehousing Co QSC Industrials 929 56.9 11% 17.1 3.2 0.87 2.4 High Medicare Group QSC Healthcare 922 119.3 2% 17.1 3.7 1.36 4.2 High
Zad Holding Co SAQ Consumer
Non-Cyclicals 502 84.8 1% 9.8 1.4 0.42 4.7 Average
Source: Reuters
There were three companies that generated positive return in this segment. Gulf
Warehousing Company gave the highest return during the year at 11%. The
positive performance in the stock market was driven by the steady rate of
growth in its net profits in the first nine months of 2015. Net profit for Medicare
Group in the first nine months of the year rose 12.5% to about QR 128.8 million
compared to QR 114.5 million in the corresponding period last year. The increase
in profits was driven by the 17% increase in revenues during the 1st 9 months of
2015. Total revenues of the Zad Holdings in the first nine months increased by
23% to QR 799.2 million, including QR 90.5 million compensation from the
government to support bread price. Direct cost rose 21.8% to QR 639 million
and accordingly the overall operating profit rose 21.8% to QR 160.2 million. Net
profit for Zad Holding Company in the first nine months fell to QR 126.76 million
compared to QR 147 million in the corresponding period last year.
6 Stocks listed in Qatar with market capitalization value of lesser than USD 1,000mn but greater than USD 500mn have been considered as mid-caps for our analysis 7 There are only four stocks in the Qatar stock exchange that could be classified as Mi-cap stocks
Ooredoo QSC, which is Qatar’s
largest telecom operator in
terms of market capitalization,
fell by 39.47% during 2015.
Masraf Al Arayan’s net profit for
the nine months to Sept. 30
was 1.51 billion riyals,
compared with 1.43 billion riyals
in the same period a year ago.
MARKAZ RESEARCH
Qatar Stock Market Outlook 2016 - January 2016
Kuwait Financial Centre “Markaz” 7
Mid Cap8
Top decliners -Mid cap
Company Sector M Cap
(USD mn) Last
Close
YTD returns (in %)
P/E P/B Div
Yield Beta ADTV
Qatar Industrial Manufacturing Co QSC
Industrials 520 39.85 -8% 13.0 1.3 0.49 7.5 High
Source: Reuters
Gross profit for Qatar Industrial Manufacturing Company from its sales in the first
nine months of the year rose 9.3% to QR 45.9 million. Net profit for Qatar
Industrial Manufacturing Company (QIMC) in 9 months stood at QR 135 million
compared to QR 141 million in the corresponding period last year. The stock
declined by 8% in 2015
Small Cap9
Top Gainers-Small Cap
Companies Sector M. Cap
(USD mn) Last
Close 2015 P/E P/B Beta
Div. Yield
ADTV
Qatari German Company for Medical Devices QSC
Healthcare 44 13.72 35% nm 1.0 0.67 0.0 High
Source: Reuters
Qatari German Company for medical devices was the only company in the small
cap segment to achieve positive share price gain in 2015. Qatari German
Company for Medical Devices net loss in the first nine months to stand at QR 9.4
million compared to QR 9.9 million in the corresponding period last year. Gross
operational revenues of the company together with other income in the first nine
months declined 52% to about QR 357 thousand. Total expenses decreased by
22.1% to QR 6.7 million. Stock of Qatari Company gained by 35% in 2015.
Top Five Decliners-Small Cap
Company Sector M Cap
(USD mn) Last
Close
YTD returns (in %)
P/E P/B Div
Yield Beta ADTV
Dlala Brokerage and Investment Holding Co QSC
Financials 144 18.49 -45% nm 1.9 1.13 0.0 High
Al Khaleej Takaful Group QSC Financials 214 30.5 -31% 15.1 1.3 0.79 4.3 High Alijarah Holding Co QSC Industrials 192 14.1 -30% nm 0.6 0.79 6.0 High Doha Insurance Co QSC Financials 288 21 -28% 15.5 1.0 0.71 4.8 Low Salam International Investment QSC
Industrials 371 11.82 -25% 17.6 0.8 0.66 5.1 High
Source: Reuters
Net loss of Dlala Brokerage and Investment Holding Company in the first nine
months of the year stood at QR 24.1 million compared to net profit of QR 62.29
million in the corresponding period last year. Net operating revenue of Dlala
Brokerage and Investment Holding Company in 9 months fell 59.9% to QR 33.5
million, of which QR 23.9 million net brokerage revenues, which fell by more
8 Stocks listed in Qatar with market capitalization value of lesser than USD 1,000mn but greater than USD 500mn have been considered as mid-caps for our analysis 9 Stocks listed in Qatar with market capitalization value of lesser than USD 500mn have been considered as small caps for our analysis
Gross profit for Qatar Industrial
Manufacturing Company from
its sales in the first nine months
of the year rose 9.3% to QR
45.9 million.
Qatari German company for
medical devices was the only
company in the small cap
segment to achieve positive
share price gain in 2015.
Al Khaleej Takaful Group net
profit in the nine months stood
at QR 32.2 million, a decline of
41.4% compared to net profit of
QR 55.1 million in the
corresponding period last year.
MARKAZ RESEARCH
Qatar Stock Market Outlook 2016 - January 2016
Kuwait Financial Centre “Markaz” 8
than half owing to lower trades that took place in Qatar stock exchange.
Expenses of all kinds, including depreciation, marginally increased to QR 21.4
million. Alijarah Holding posted a net loss of QR 42.4 million in Q3 2015
compared to net profit amounting to QR 36.5 million for the same period of the
previous year. Al Khaleej Takaful Group net profit in the nine months stood at QR
32.2 million, a decline of 41.4% compared to net profit of QR 55.1 million in the
corresponding period last year. The company's net income in the first nine
months of the year fell 41.6% to QR 63.5 million, of which QR 25.9 million came
from Takaful insurance agency income and QR 28.5 million from investment
income and the rest from others, noting that most of the decline was result of
lower investment income. Doha Insurance was the latest, reporting a net profit
of QR42 million in the first three quarters of 2015. This is down from QR57
million during the same period of last year. Salam International Investment’s net
profit was down 1.9% year-on-year to QR65.9 million, from QR67.2 million in the
same period of last year.
MARKAZ RESEARCH
Qatar Stock Market Outlook 2016 - January 2016
Kuwait Financial Centre “Markaz” 9
What to expect in 2016?
We base our analysis on a set of four factors, which we believe will influence and
impact market performance. We have assigned weights to each of these factors
based on our assumption about the degree of influence it would have on the
stock market performance as a whole in 2016. An explanatory note for all the
five factors can be found in Appendix 1.
Five-Force Framework
Source: Markaz Research
1. Earnings Growth Potential
The total corporate earnings of Qatar is expected to increase by 4.7% during
2015. Qatar had the highest earnings growth out of all the GCC countries during
the first three quarters of 2015. Revenues from the banking and real estate
sector were the ones responsible for the strong performance. Earnings from the
real estate sector grew at a rate of 129.4% (YoY) while the earnings from the
banks grew at 7% (YoY) during the same period. Real estate sector’s earnings
were boosted by the one-off gain that Barwa real estate was able to achieve.
Banking sector has a larger impact on the total earnings for Qatar accounting for
44% of the earnings.
GCC Stock Market
Assessment
Valuation Attraction
25%
Market Liquidity
10%
Economic Factors
25%
Earnings Growth Potential
40%
Qatar had the highest earnings
growth out of all the GCC
countries during the first three
quarters of 2015. Revenues
from the banking and real
estate sector were the ones
responsible for the strong
performance.
Earnings from the real estate
sector grew at a rate of 129.4%
(YoY) while the earnings from
the banks grew at 7% (YoY)
during the same period.
MARKAZ RESEARCH
Qatar Stock Market Outlook 2016 - January 2016
Kuwait Financial Centre “Markaz” 10
Earnings Trend – Qatar (USD mn)
Source: Thomson Reuters Eikon, Markaz Research
We expect banks to maintain their momentum as the economy continues with its
infrastructure expansion and continued credit growth expectations. Real Estate is
another sector that has witnessed tremendous increase in profits over the last
year. Barwa Real estate’s profit rose by 4X till September 2015 which has helped
in boosting the sector’s revenue as a whole. But owing to the real estate sector’s
reliance on oil as an important growth driver and a higher base effect, we expect
the real estate sector to perform negatively in 2016.
Qatar, with a population of 2.16 Mn and high mobile penetration of 100%10,
offers an intense competitive environment for telecom operators. Ooredoo and
Vodafone Qatar are the only two companies to offer mobile services in the
country. Both of these operators have achieved saturating point and currently
experiencing a significant drop in ARPUs (Average Revenue per User).
At the start of 2016, we expect overall earnings growth to be marginally negative
at -0.6%. While Qatar has been diversifying its source of revenues, the payoff
from them is not expected to be immediate. Banks and construction related
sectors alone are expected to post positive earnings in 2016, the former owing to
the strong local consumption demand and credit growth, the latter owing to the
huge infrastructure spending that the Qatar government has been undertaking in
its preparation for the Football World Cup in 2022.On a overall level we expect
the earnings growth to be subdued in 2016 and hence hold a neutral view.
2. Valuation Attraction
On a standalone P/E basis, Qatar, with a ratio of 11.1x of the earnings, appears
to trade at lower valuation level compared to peers such as KSA & Kuwait. On
P/B basis Qatar market is the most expensive among all GCC nations at 1.6x.
Dividend yield for Qatar stands at 5.1% which is the highest among GCC along
with Bahrain. On an overall basis, we adopt a positive view on Qatar.
Possible steps to be taken in Qatar Capital Markets
Source: Markaz Research
Qatar was upgraded to emerging market status during June 2013 along with
UAE. Both the countries were under the review for five years before they
received the final approval. The “emerging” designation is a major sign of
approval from institutional investors for the countries' stock markets. MSCI
claimed that the positive developments in the countries’ infrastructure were the
reasons behind the upgrade of both these markets.
In the couple of months following the upgrade Qatar stock index witnessed
increased activity and its index gained by 8% before falling. This upgrade has
brought in huge fund inflows into the country’s stock market; the upgrade has
brought in $2bn in foreign funds to the exchange12. In addition to the MSCI
upgrade, Qatar has also been upgraded recently by FTSE to secondary emerging
market status which is expected to bring in additional foreign investment into the
stock market13. Despite the upgrades Qatar’s current standing leaves a lot of
scope of improvement in areas such as – Foreign ownership limits/ levels,
Clearing and settlement, transferability of stocks and short selling.
MSCI’s stance for Qatar as of June, 2015 would help us to analyse the potential
developments in the Qatar capital market that are required and might happen in
2016.
12 July 2015, Oxford Business Group, Statement of exchange CEO Al Mansoori 13 Sep 2015 – To Qatar to be added in the list in two phases – Sep 2016 and March 2017
Increased Market Activity and Liquidity
Transferability and
Off- Exchange
transaction
Expanding the scope of stock lending
Equal rights to foreign
investors
Better Corporate
Governance
Increased Foreign
Ownership
The “emerging” designation
is a major sign of approval
from institutional investors
for the countries' stock
markets.
In the couple of months
following the upgrade Qatar
stock index witnessed
increased activity and its
index gained by 8% before
falling.
MARKAZ RESEARCH
Qatar Stock Market Outlook 2016 - January 2016
Kuwait Financial Centre “Markaz” 17
Current Stance of MSCI
Parameters Status
Classification as of June, 2015 Standalone
Openness to foreign ownership
- Investor qualification requirement
- Foreign ownership limit (FOL) level
- Foreign room level
- Equal rights to foreign investors
++
-/?
-/?
+
Ease of capital inflows/outflows
- Capital flow restriction level
- Foreign exchange market liberalization level
++
++
Efficiency of operational framework
Market Entry
- Investor registration, account setup
Market Organization
- Market Regulations
- Competitive landscape
- Information flow
Market Infrastructure
- Clearing & Settlement
- Custody
- Registry/Depository
- Trading
- Transferability
- Stock lending
- Short Selling
+
++
++
++
-/?
+
++
++
-/?
+
-/?
Stability of institutional framework +
++ No issues; + no major issues, improvements possible;
-/? improvements needed/extent to be assessed. Source: MSCI Global Market Accessibility Review, June 2015
MSCI has indicated that Qatar market have to liberalize their foreign ownership
limit which is currently fixed at maximum 49% in a company’s stock. Qatar
increased the foreign ownership from the previous limit of 25% and this proposal
was ratified during August 2015. Technical reforms such as increasing foreign
ownership can help in bringing in foreign investors. During the 2nd quarter of
2015, six companies increased their non- Qatari ownership - Qatar General
Insurance & Reinsurance Company, Qatar Insurance Company, the Commercial
Bank of Qatar and Doha Bank, Ezdan Holding and Aamal14. We can expect this
trend to continue in 2016 as well as more companies try to bring in foreign
investors on board. Increasing the ownership levels would also help bringing in
international best practices in areas such as corporate governance, shareholder
rights etc.
Foreign room level, a new adjustment factor introduced by MSCI, accounts the
proportion of investable stocks in a market to foreign investors. For equity
market to function to its fullest extent there has to be robust investor protection
14 Qatar Central Securities Depository (QCSD)
MSCI has indicated that
Qatar market have to
liberalize their foreign
ownership limit which is
currently fixed at maximum
49% in a company’s stock.
Foreign room level, a new
adjustment factor introduced
by MSCI, accounts the
proportion of investable
stocks in a market to foreign
investors.
MARKAZ RESEARCH
Qatar Stock Market Outlook 2016 - January 2016
Kuwait Financial Centre “Markaz” 18
norms and equitable treatment towards all class and category of investors. Qatar
has taken its 1st step in achieving this goal by extending the rights of Qatari
nationals to other GCC nationals with regard to shareholding of listed Qatari
companies. This decision is part of a wider programme to expand the country’s
financial market’s base. Extending similar rights to foreigners would help in
cementing Qatar as a promising emerging market investment.
Market liquidity is a direct function of the number of active participants in the
market that are willing to buy and sell the stock and the pace at which a stock
can be sold without affecting the price too much. For this to happen there has to
be wide spread awareness about investing and trading in stock market. Market
Making in Qatar has been given a much needed boost through liquidity providers
through recent regulations.
Liquidity Provider - Exchange Agreement – It is an agreement between the
licensed LP and the Exchange, whereby the LP obtains an incentive, through
discounts on exchange transaction fees, to make markets in selected stocks. The
agreement stipulates the activity levels expected of the LP in each selected
stock, with thresholds on number or value of shares bid and offered, the amount
of time during the trading day that these bid and offers are maintained and the
maximum spread between each bid and offer. If the LP meets all of these
stipulations for a given stock, a discount on the transaction fees is accrued and
the total discount for each month is then paid to the LP by the Exchange.
Liquidity Provider – Specific Issuer - In this arrangement, the LP obtains an
incentive from the issuer for supporting liquidity in the issuer’s stock. Once again,
there are specific stipulations as to spread, number or value of shares and time
in the market applied to ensure that the LP provides the required liquidity. The
specific terms are agreed between the LP and the issuer.
In either case, a license must be granted by the regulator, the QFMA, and a copy
of the agreement and an appropriate application needs to be lodged with them.
Currently there are only two companies that provide LPs – The Group and
Commercial Bank Investment Services (CBIS). Importance of LPs become more
imperative as the Qatar Stock Exchange gears up for the launch of Exchange
Traded Funds (ETFs) and Exchange Traded Products (ETPs)
Regulatory structure in Qatar is multi-pronged. Currently Qatar Central bank,
Qatar Financial Market Authority and Qatar Financial Centre regulation are
currently responsible for the regulation of the financial markets. Consolidation of
the regulatory authorities with Qatar Central bank leading the way would bring in
more efficient policies and enforcements. Investors also prefer acting with a
single efficient regulator instead of multiple entities.
It is also anticipated that once Qatar expands down the path of allowing state
owned companies to sell shares to the public over the coming years, foreign
investors will benefit from the increased number of securities available to them in
the secondary market.
It is an agreement between
the licensed LP and the
Exchange, whereby the LP
obtains an incentive, through
discounts on exchange
transaction fees, to make
markets in selected stocks.
Foreign room level, a new
adjustment factor introduced
by MSCI, accounts the
proportion of investable
stocks in a market to foreign
investors.
MARKAZ RESEARCH
Qatar Stock Market Outlook 2016 - January 2016
Kuwait Financial Centre “Markaz” 20
Appendix: Blue Chip Stocks
Qatar National Bank
Qatar National Bank (QNB) recorded a net profit of QR 3.1 billion in 3Q2015, up 7% YoY and 8% QoQ.
The drivers of the YoY increase in net profit were slightly higher operating income and income from
associates as well as lower provisioning. Net interest margin decreased QoQ, with net interest income up
2% YoY, down 1% QoQ, driven by strong investment income. Lower loan provisioning continued to be a
major driver of net profit growth with QNB registering net recoveries (QR 91 million) during 3Q2015.