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QATAR STOCK EXCHANGE

Reforms, economic resilience set stock market on path to growth and more listings

Article - November 8, 2016

The first listing of a private company in six years in April has generated renewed optimism around the QSE, whose CEO says that there has been an increase in the number of international investor accounts being opened

RASHID BIN ALI AL-MANSOORI, CEO, QATAR STOCK EXCHANGE

While economic uncertainties and market worries have hit markets globally over the past year, the Qatar Stock Exchange (QSE) has positioned itself well to weather the storms and set the stage for future growth and expansion.
A combination of regulatory reform, the Gulf country’s success in widening its economic base, solid economic growth, some good news from rating agencies, and a likely string of new listings on the nation’s exchange are providing grounds for optimism.

In the year since July 2015, Qatar Stock Exchange’s index fell around 18%, although its losses were less severe than those seen in fellow Gulf Cooperation Council (GCC) members Saudi Arabia or Dubai. However, since January, the decline by the Qatar index has slowed markedly, to a loss of 4.84%, despite the continuing problems caused by low energy prices, the fallout from military conflict in parts of the Middle East, and the turmoil that has resulted from the UK’s Brexit vote.

“We could not escape some of the events around us, such as the drop in oil prices or political upheavals and tensions in the region,” acknowledges Rashid bin Ali Al-Mansoori, CEO of the QSE.

“But the Qatari economy remains strong. We saw evidence of this when companies listed on the Qatar Stock Exchange distributed very generous dividends at the beginning of the year,” he adds.


“We know there are many successful companies in the non-hydrocarbon sector owned by families and we need to demonstrate to them the advantages of being listed on the exchange. This also broadens our offering to the investor community”

Rashid bin Ali Al-Mansoori, CEO, Qatar Stock Exchange

Qatar, with its population of just 2.2 million, has proven oil reserves of more than 25 billion barrels, enough for 56 years of production at current levels, and its natural gas reserves are the world’s third largest.

Mr. Al-Mansoori argues that a combination of forward planning by the Qatari government, the use of effective fiscal controls, and diversification of the country’s revenues – more than 50% of Qatar’s GDP now comes from the non-hydrocarbon sector – are setting the stage for a brighter future.

While Qatar’s GDP is still largely driven by oil and gas earnings, things are changing. It is insulating itself from low energy prices by achieving a substantial expansion in manufacturing, construction and financial services. Plus, it was the only GCC member that avoided a budget deficit in 2015, although it is projecting a $12.8 billion deficit, 6% of GDP, in 2016.

Some of the optimism about the future of the exchange has been generated by a new listing, the first this year, bringing the total to 44. In April, financial firm Qatar First Bank (QFB) became the first private-sector company to appear on the exchange in six years and the first bank to be added in nine years. QFB, previously known as Qatar First Investment Bank, focuses on Sharia-compliant financial and investment services.

The previous new listing was back in 2014, when Mesaieed Petrochemical Holding Co., a subsidiary of state-owned Qatar Petroleum, was floated and was the first new entrant into the bourse since 2010.

Local media reports have suggested that several other large state-owned enterprises – including Qatar Airways, media group Al Jazeera and transport operator Mowasalat – have been considered for public listing.

Additionally, more privately held companies are eyeing possible share issuance. UrbaCon Trading and Contracting, one of Qatar’s largest construction firms, and building company Aljaber Group, are among them, local media reports say.

Also, family-run bottled water supplier Rayyan Mineral Water Co. may be floated by the end of this year. If so, it would be the first consumer goods company to list on Qatar’s exchange, which is dominated by financial and real estate firms.

With a listing there will be “better control, better regulations and corporate governance. Business is not a one-man show anymore. An IPO is protective for the interests of our company,” Khalifa Khalid Al Rabban, Deputy Chairman of Al

Rabban Holding which owns 100% of Rayyan, said in a June interview with Reuters news agency. Companies that list on exchanges are subject to the rules, regulations and corporate governance standards of the markets they join.

The exchange is keen to see this type of new issuer. “We know there are many successful companies in the non-hydrocarbon sector owned by families, and we need to demonstrate to them the advantages of being listed on the exchange.

This also broadens our offering to the investor community,” says Mr. Al-Mansoori.


“We have witnessed increases in the number of international investor accounts being opened and have been delighted with the progress we are making in boosting Qatar’s image around the world. Our operational and regulatory improvements have resulted in us being upgraded by MSCI and now by FTSE Russell”

Rashid bin Ali Al-Mansoori, CEO, Qatar Stock Exchange

His ambitions have been given a boost by some important pieces of news.

In February this year, Standard & Poor’s affirmed its ‘AA’ long-term and ‘A-1+’ short-term foreign and local currency sovereign credit ratings for Qatar, despite the large fall in energy prices seen since 2014, saying the country’s outlook is stable and will see economic growth of about 4% in 2016-2019. This comes at a time when S&P has downgraded Qatar’s Gulf neighbors, Oman, Bahrain and Saudi Arabia.

Secondly, the benchmark FTSE Russell index, effective this year, has upgraded Qatar’s status to “secondary emerging” from “frontier”, reinforcing a similar upgrade from global index compiler MSCI in 2013.

“We have witnessed increases in the number of international investor accounts being opened and have been delighted with the progress we are making in boosting Qatar’s image around the world. Our operational and regulatory improvements have resulted in us being upgraded by MSCI and now by FTSE Russell,” says Mr. Al-Mansoori.

Qatar’s status as a reliable investment environment was reinforced by the decision of the World Federation of Exchanges, which represents 63 regulated exchanges across the world, to hold its 2015 annual meeting in the Gulf country.

The exchange is also trying to enhance Qatar’s investment environment through a variety of means, including programs with its listed companies to promote environmental awareness and sustainability, as well as “talking with our stakeholders and the regulator, with a view to improving market rules to ease access and boost confidence so that our market becomes more attractive and relevant for the investor community as a whole,” Mr. Al-Mansoori adds.

“We would like to see more investors and companies from the United States who are interested in working with us, our asset managers, financial institutions and investors.”

One area of focus which should Qatar’s exchange develop further is the country’s reforms to its Islamic banking and investment rules.

In December last year, the Qatar Financial Center Regulatory Authority announced various such reforms, moves that the regulator’s CEO Michael Ryan said would provide a solid platform for future growth in financial services.

Mr. Al-Mansoori has said that efforts are under way with a local asset manager to launch the world’s largest Sharia-compliant Exchange Traded Fund: “It is ongoing and we hope it will be launched this year. Insha’Allah (God willing).”

Even non-Islamic countries and investors trust Islamic finance as it shows resilience in any crisis, he notes, adding: “Islamic financial institutions have remained strong even through all the recent crises. Islamic finance is now becoming particularly prevalent and accessible across Europe.”

“Great strides have been made by Qatar in promoting the country as business friendly and welcoming,” concludes Mr. Al-Mansoori, pointing to the impact of long-term planning aimed at achieving this, such as the Qatar National Vision for 2030.

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