Qatar disappoints but still outperforms

Investors look to contract awards in Qatar in hopes to stimulate equity market and re-ignite interest for stocks.

Equities have not performed as expected on Qatar's stock market this year as investors wait for big project announcements. Kami / arabianEye.com

Investors are hoping for a turnaround in sentiment and trading activity on Qatar's stock market.

Equities have not lifted off this year as expected, despite the billions of dollars expected to be spent on infrastructure projects by the time the 2022 Fifa World Cup rolls up.

Qatar's QE Index has lost 3.5 per cent to 8,448.49 so far this year. It rose just 1 per cent last year, but still outperformed regional equity markets after the Arab Spring uprisings toppled leaders in Egypt, Tunisia, Libya and Yemen.

"You need to take more than a one-year time horizon to understand why it has underperformed," said Tariq Qaqish, the deputy head of asset management at Al Mal Capital.

In the past two years, however, Qatar has outperformed the Dubai Financial Market by 7 per cent, even with the DFM's recent rally.

Qatar is on a US$200 billion (Dh734.6bn) development drive ahead of the World Cup

"There were a lot of investors who bought up shares ahead of the World Cup, with the expectation that this event will boost earnings for the listed corporates," Mr Qaqish said.

Even though infrastructure building has begun, investors are waiting for news of awards of further big projects related to the event, said Haissam Arabi, the chief executive at Gulfmena Investments, an asset manager based in Dubai.

"The market may have underperformed but effectively it's only reflecting its fair value," Mr Arabi said.

"There is a lot of hype and excitement which is priced in and perhaps even overpriced over prospects related to the World Cup. But unless we see major contracts being awarded the market is likely to stay as it is," Mr Arabi said.

Corporate earnings this year, especially for the banks, have showed a muted response to the nation being named as host for the World Cup, a disappointment for many investors.

Foreign investors poured their money into Qatari stocks last year. Today they are taking out their profits and are net sellers in a generally illiquid market.

The World Cup aside, there was an expectation that Qatar had a decent chance for an upgrading by the international index compiler MSCI to "emerging" market status. It is currently classified as a "frontier" market.

Earlier this year, Industries Qatar raised its foreign ownership level, addressing one of the key issues MSCI raised in earlier years.

"The increase in foreign ownership gave an indication that other companies could follow suit and raise the spectre of a possible upgrade," Mr Qaqish said. But MSCI decided to delay its decision until next month, citing low foreign ownership limits as the only remaining impediment towards an upgrading.

Qatar's military role in Libya and Syria has also caused concern for equity investors.

The country is looking to buy almost $10bn worth of missiles and defence equipment, a Pentagon official said last week.

In the UAE, equity investors will await the final wave of corporate earnings as reporting season comes to a close.

Third-quarter results so far have exceeded expectations, with banks and property companies showing signs of recovery.

Stocks in Abu Dhabi and Dubai ended the week with a muted response to earnings as attention turned to volatility in the US and European markets.

In the US, a looming $600bn worth of spending cuts and tax increases is due in January. In Europe, finance ministers will be meeting once again to try to secure a deal on Greece's debt reduction.

For now, investors will have to brace for the worst - from both local and international markets.