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For Qatari residents: Do you prefer a summer or winter World Cup 2022?

Qatar Bourse emerging

Written by  Author |   Mon, 12 August 2013 11:11

Qatar's capital markets saw mixed movements since the start of 2013. While the Qatar Exchange posted price increases, the Qatari debt papers were on the decline following rises in US Treasuries yields, while the country's five-year CDS spreads saw small contractions since year-end 2012.

The Qatar Exchange general index rose by 10.5% during the first five months of 2013 to close at 9,238.00 at end-May 2013, following a drop of 4.8% in 2012. This compares to an average increase of 8.2% in Arab stock markets prices, as per the S&P Pan Arab Composite Index, as some regional bourses benefited from stability in crude oil prices at above $100 per barrel and saw recovery in the real estate market. As to market pricing ratios, the Qatar Exchange traded at a P/E of 13.0x at end-May 2013 versus 13.4x at end-2012, and compared to a P/E of 13.5x in the MENA region. Also, it traded at a P/BV of 1.91x at end-May 2013 versus 1.86x at end-2012 and compared to a P/BV of 1.63x in the MENA region. In addition, the Qatar Exchange posted a dividend yield of 4.10% at end-May 2013 as compared to 4.12% at end-2012.

The market capitalization rose by 10.9% during the first five months of 2013, moving up from $126.3 billion at end-2012 to $140.1 billion at end-May 2013 within the context of a rise in prices coupled with stability in the number of listed companies at 42. The market capitalization represented 75.5% of GDP at end-May 2013, up from 68.9% in 2012, which reflects the rising dimension of the Qatar Exchange in the Qatari economy.

The total trading value amounted to $7.3 billion during the first five months of 2013, falling by 20.0% relative to the corresponding period of the previous year. On the backdrop of a rise in the market capitalization and a fall in total trading value, the annualized turnover ratio reached 12.5% during the first five months of 2013, down from 17.6% during the corresponding period of 2012.

As for the new measures adopted by the Qatar Exchange so far this year, it is worth mentioning that the bourse started early 2013 real-time calculation and dissemination of the QE Al Rayan Islamic Index, which reflects the price performance and dividend income of QE listed stocks that are Shari'a-compliant according to Al Rayan's Shari'a Supervisory Board. Also, the QE stated in March that any component exceeding a 15% weight in the QE index as of market close March 31, 2013 will have its weight capped at the 15% level and excess weight allocated to remaining stocks proportionately.

Last but not least, it is worth highlighting that the Qatar exchange was upgraded by MSCI, whose equity indices are tracked by investors with about $7 trillion in assets, to emerging market status from frontier market status on June 11, 2013, following five years of review, which would result in access to a larger pool of investments. The upgrade occurred on the back of improved market accessibility and a surge in liquidity across the Qatari market. In fact, Qatar has improved its delivery-versus-payment systems and currently includes the buyer-cash-compensation procedure, where the buying investor is paid in cash if a security is unavailable for delivery on settlement day.
At the level of the fixed income market, high grade names like Qtel and Qatari Diar and papers issued by financial institutions like QNB and CBQ saw price drops across the board during the first five months of 2013, mainly due to rises in international benchmark yields after the US Federal Reserve Chairman said the Central Bank may cut the pace of asset purchases if policy makers see indications of sustained growth.

Qatar's five-year CDS spread currently stands at around 73 basis points, down by 9 basis points since year-end 2012, which underlines its low risk of default, noting that the Qatar CDS spread is the third lowest in the region after Saudi Arabia (68 bps) and Abu Dhabi (70 bps), and is much below the average CDS spreads in the Middle East (268 bps) and emerging markets (278 bps).
As to new issues, Qatar Telecom issued in January 2013 a $500 million 15-year bond with a coupon of 3.875% and sold another $500 million 30-year bond with a coupon of 4.5%. Within the financials space, QNB launched in April a $1 billion seven-year bond at a coupon rate of 2.875%. As to credit ratings, Moody's said at end-December 2012 that Qatar's "Aa2" foreign and local currency ratings are supported by the country's very high economic and government financial strengths. Also, S&P affirmed in May 2013 its long-term and short-term foreign and local currency ratings on Qatar at "AA/A-1+" with "Stable" outlook.

Looking forward, the authorities' efforts to develop a deep and liquid domestic debt market would bring important benefits in financing, monetary transmission and liquidity management and would reduce exposure to foreign market instability. In parallel, plans to list government bonds on the Qatar Exchange, and the lead taken by the QCB in setting up a domestic credit rating agency and a central securities depository are all important steps toward developing a local debt market, as per the IMF.

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