Swings & Roundabouts

The trials and tribulations of Qatar's stock market continued this week, as share prices edged upwards and a major effort was launched to convince investors that the worst is now over.



After consistently sliding since last September, the Doha Stock Market (DSM) began clawing its way back up again in the past 10 days, with a string of consecutive increases in this week's trading.



However, strong bearish pressures were still evident, with Monday's General Index close of 9602.2 points just 44.99 up on the previous day. Market capitalisation (mcap) was QR275.39bn ($75.65bn), unchanged from Sunday.



Trading volumes continued to be high however, underscoring the bear market, with over 11m stocks, worth a total of QR586.92m ($161.24m), changing hands on Monday in 9636 deals. This was 32% up on the previous day. Most shares registered a rise of some sort, with the insurance and banking sectors outperforming the market average with 2.55% and 1.49% increases, respectively.



In the last fortnight, the index has recovered around 1000 points, a development that came as something of a relief after recent speculation that the DSM was losing investors.
February had seen the index lose some 1900 points, a 27% drop in share values, with some 24 decliners and only eight gainers out of the 32 listed stocks during the month.



Minister of Economy and Commerce Sheikh Mohamed bin Ahmed Al Thani had even intervened to announce a week ago that the market would be revamped. He also put much of the slide down to the rash of IPOs that has broken out not just in Qatar, but up and down the Gulf in recent months.



Many analysts would agree that this has had a detrimental effect on secondary markets, with the Kuwait-based Gulf Investment House reporting recently that in 2005, some $6bn was raised by investors through such offerings in the Middle East region. This was double the figure for 2004.



Yet investors, it seems, have often been content to go on a profit booking spree, keeping themselves as liquid as possible in order to participate in upcoming IPOs. This has had a strong effect not just in Qatar, but in the neighbouring UAE and elsewhere.



This year too, some half dozen major IPOs have been slatted for the DSM, with these likely to include Gulf Commercial Bank and Al Jazeera International. Over the border in neighbouring Saudi Arabia, a fellow Gulf Cooperation Council (GCC) state, the number of IPOs in 2006 will likely be around 60.



At the same time, the stock market decline in Qatar has not been a fair indicator of the value of the companies listed, many analysts point out. Indeed, the underlying financials of the companies on the DSM are known to be generally strong. March 13 saw the announcement that 23 of the DSM listed companies had recorded major increases in profit last year, collectively registering more than QR10bn ($2.74bn) in profits, 40% up on the total for those 23 the previous year.



Qatar itself too has been seeing phenomenal growth, fuelled by high oil prices, which are also likely to remain strong in the year ahead.



Yet between September last year and now, some 33% of the DSM's mcap has been lost. Behind this, some analysts have also pointed to a long-term growth pain, as the relatively newly opened market had overheated in the run up to September 2005. This was largely due to the surge in oil prices and a massive programme of state spending, which saw some QR38bn ($10.45bn) for the 2005-2006 fiscal year earmarked by the government. The post-September blues are therefore something of a natural corrective.



"I am confident that those who have entered the market over the long term will benefit from capital gain," Sheikh Mohamed told reporters last week, as he tried to reassure the market by making two clear points.



First, he moved to scotch rumours of investors leaving the DSM. Indeed, more non-Qataris are entering the DSM these days, he said, often to purchase rather than sell. Secondly, he said that announcements of dividends by company boards were provisional, and according to market regulations, did not become official until approved by his ministry. This was interpreted by many as a sign that the government was likely to monitor the market even more closely in future.



Indeed, more monitoring and regulation have been called for in a number of areas, and in particular recently over the way in which IPOs are managed. If the kind of profit-booking that has been going on is to be made less attractive - and thus the exchanges to be kept more buoyant - some traders say the establishment of a "fair" price becomes more essential, with even calls for more disciplining of brokers. How that might be managed in the months ahead may well be crucial to ending the bear run more permanently, and keeping recent gains on the rise.