Qatar’s capital markets supported by a new secondary platform

With a strong performance in the early months of 2022, Qatar’s capital markets have demonstrated their resilience in the face of global and regional uncertainties. This growth is likely to continue in the year ahead, boosted by the global economic recovery and Qatar’s key role in supplying the world with energy. At the same time, recent reforms to foreign ownership rules – including a law allowing up to 100% overseas shareholding in listed companies – demonstrate a continuing policy of economic openness, encouraging international investment.

The year 2021 also saw the Qatar Stock Exchange (QSE) open a secondary platform, the Qatar Equities Venture Market (QEVM), as efforts to broaden and deepen the sector moved forwards. As of March 2022 there were two companies listed on the venture market, Mekdam Holding Group and Al Faleh Educational Holding. Bonds – both conventional and Islamic – have become increasingly popular among investors in recent years, as the country seeks to finance the costs of the Covid-19 pandemic, as well as the major capital expenditure undertaken in recent years to build the infrastructure necessary for hosting the 2022 FIFA World Cup.

Assets under management (AUM) have also seen heightened activity, as asset managers re-evaluate portfolios and investment strategies in a post-pandemic and energy-transitioning world. Challenges remain, along with uncertainty over the course of the pandemic and its impact on the global economy. Nonetheless, with solid fundamentals in place and a growing attractiveness to investors, Qatar’s capital markets are well positioned for the future.

Oversight

The Qatar Financial Markets Authority is the QSE and the wider capital market’s independent regulatory and oversight body, and works under the auspices of the Qatar Central Bank (QCB). The authority is headed by a board, chaired by Sheikh Bandar bin Mohamed bin Saoud Al Thani. The Qatar Central Securities Depository is responsible for handling deposits, settlements and transaction clearing. Capital market entities operating in the Qatar Financial Centre (QFC), meanwhile, are supervised and regulated by the QFC Regulatory Authority, an independent body that follows English common law. It aims to promote and maintain the efficiency and transparency of the QFC, as well as maintain financial stability and minimise systematic risk.

All regulatory bodies have been working to meet the goals of Second Strategic Plan for Financial Regulation 2017-22. The framework forms part of the Second National Development Strategy 2018-22 and Qatar National Vision 2030, the latter of which is the country’s long-term roadmap for economic diversification. These strategies seek to strengthen the regulatory ecosystem, promote cooperation, develop the financial markets, foster innovation and financial inclusion, enhance human capital and heighten confidence in the financial system.

Structure

The QSE, originally named the Doha Securities Market, began operations in 1997 with 17 listed companies. As of January 2022 the stock exchange had 47 companies listed on its main market, with 12 in the banking and financial services sector; 10 in consumer goods and services, as well as 10 in industry; six in insurance; four in real estate; three in transport; and two in real estate.

The QSE features 12 indices, including the General Index, the Qatar Exchange (QE) All Share Index, the QE Al Rayan Islamic Index, and all share indices for the seven economic sectors active on the market. There are also two exchange-traded funds (ETFs) – the Al Rayal Qatar ETF and the QE Index ETF, as well as government bonds, Treasury bills (T-bills) and sukuk (Islamic bonds) in the fixed-income segment.

Until January 2019 foreign ownership of most QSE-listed companies was limited to 25%, but that month a new law raised the maximum stake to 49%. In April 2021 a draft measure was approved by the Council of Ministers that allowed up to 100% foreign ownership of most listed companies; full foreign ownership of listed banks was approved in August.

Performance

Despite an initial slump in early 2020 after the start of the Covid-19 pandemic, 10 of the QSE’s indices registered growth, with the All Share Index and the All Share Consumer Goods and Services Index registering contractions. Overall, of the 47 companies trading on the main market, 31 saw an increase in their share price during 2020, while 16 saw a decrease. Total trading rose during the first year of the pandemic, from QR67.7bn ($18.6bn) in 2019 to QR105.8bn ($29bn) in 2020, with the number of shares traded increasing from 11.4bn to 55bn over the same period. This strong performance despite economic headwinds was reflective of the proactive pandemic relief measures instituted by the government, which included a directive to government enterprises and funds to support the QSE by increasing their investment in listed companies by a total of QR10bn ($2.7bn).

The value of trades increased to QR112.8bn ($31bn) in 2021, even as the number of trades fell to some 47bn. Qatari investors accounted for the majority of both purchases and sales of stock that year, at 58.5% and 64.9%, respectively. Non-Arab international investors accounted for the second-largest contingent of traders, conducting 26.4% of purchases and 20.7% of sales, followed by Arab investors, with 15.1% of purchases and 14.6% of sales. In 2021 one index – the All Share Real Estate Index – shrank, with its value falling by 9.8% over the course of the year. The exchange closed 2020 with a market capitalisation of QR602.2bn ($165.3bn), a figure that increased to QR667.6bn ($183.2bn) by end-2021 and QR718.1bn ($197.1bn) in January 2022.

New Listings

There have been relatively few initial public offerings (IPOs) in Qatar and the wider region in recent years, and the pandemic further weighed down issuance. Nine IPOs in MENA markets raised $1.9bn in 2020, with issuances down 40% and proceeds down 94% from 2019.

However, efforts to attract new listings have began to pay off. In late December 2020 QLM Life & Medical Insurance offered 210m shares worth $180m in the country’s first IPO since 2019 and the MENA region’s third-largest offering of the year. The Qatari exchange has also seen delistings, such as that of Al Khaliji Commercial Bank following its merger with Masraf Al Rayan in December 2021.

Fixed Income

In 2019 combined conventional and sukuk issuance reached $28bn, reflecting a compound annual growth rate (CAGR) of 28% since 2015. The expansion was largely driven by conventional offerings, which comprised more than 80% of bonds, including the $12bn sovereign bond issued in March 2019. Sukuk expanded at a more moderate CAGR of 6% over the period. This was reflective of the geopolitical landscape that softened demand from GCC investors, who account for a large portion of international demand for sukuk. Around 57% of Islamic bonds were issued in US dollars, while around 40% were denominated in Qatari riyal. The remainder targeted Asian investors and were offered in currencies including the Chinese yuan and Japanese yen.

In 2020 QR7.2bn ($2bn) worth of T-bills were issued, along with QR18.7bn ($5.1bn) in regular bonds and QR2.5bn ($686.2m) in sukuk. According to government estimates from mid-December 2021, the number of T-bills were on track to stay steady at QR7.2bn ($2bn) that year, while bonds would fall to QR13.5bn ($3.7bn) and sukuk would rise to QR7.7bn ($2.1bn). The year 2021 saw bond issuances from oil and gas entities rebound after a protracted period of low oil and gas prices. In June of that year Qatar Petroleum – which changed its name to Qatar Energy in October 2021 – made its first public bond sale, issuing $12.5bn to use for projects including the North Field expansion project. Looking to the future, in early 2022 Qatar announced it would issue its first green bond to secure environmental, social and governance funding.

Asset Management

Qatar has a swiftly expanding asset management segment, with AUM reaching $19.6bn in 2019, according to the most recent “Capital Market Report” from the QFC. The QFC handles around half of the country’s AUM, while smaller asset managers, and local banks such as Qatar National Bank and Doha Bank, are also active in the segment. Al Rayan Investment and QI nvest, both based in the QFC, are leaders in the sharia-compliant segment.

With the global economy moving towards recovery, and oil and gas prices on the rise, 2022 is poised to be a good year for investors. The QSE weathered a series of impediments to growth, and proved to be among the region’s most robust exchanges. The next challenge to deepening the market will be to encourage more firms to list. The asset management segment, meanwhile, is poised to further facilitate growth.