By Satish Kanady
DOHA: Strong gains recorded by GCC equity markets, including Qatar, in the first three quarters of 2014 were eroded due to the slump in the oil prices at the end of the year.
Supported by a strong economic outlook and market fundamentals, Qatar’s stock market got off to a strong start in 2014. The market also received a strong boost from the decision by MSCI to upgrade it to ‘emerging market’ status from ‘frontier market’. Increased ownership of 49 percent in the listed companies further boosted the market.
However, the market experienced a down trend in the last quarter of 2014, primarily weighed down by declining oil prices.
The panic was predominantly driven by local retail investors, which dominate the trading volume. Although the sentiment in the second half of the year was largely pessimistic, Qatar reported strong performance with a 18.4 percent year-on-year gain, highest in the region; but was 3.7 percent down in December 2014, compared to the previous month. “GCC equity markets ended 2014 on a weaker footing than at the start of the year. The decline in oil prices later in the year sent GCC markets on a major correction…. The S&P 500 is up a mere 1 percent on the year, a far cry from the 23 percent gain it registered during the first three quarters of the year..”, Sara Ghazzawi, analyst at NBK noted.
“Similar to other GCC markets, the Qatar Exchange (QE) experienced pressure in the fourth quarter due to weaker oil prices. The QE is exploring options by which privately held companies can also raise capital from the markets”, analysts at Global Investment House said.
According to NBK’s Economic Update, by mid-year, GCC markets went through what was seen as an overdue correction, triggered mainly by growing concerns in Iraq, but also by other country and market specific factors. Nevertheless, by the end of Q3, GCC equities seemed to still be heading towards registering a solid performance for the year with year-to-date gains reaching 50 percent and 32 percent for UAE and Qatar, respectively and 23 percent for the S&P GCC index.
Meanwhile, the S&P 500 and the S&P emerging markets indices were up a mere 7 percent and 3 percent, respectively. The sharp decline in oil prices led to a more serious correction in Q4, wiping out most of the gains made earlier.
With oil prices falling by as much as 50 percent, worries about fiscal positions, breakeven oil prices and the impact on government spending became the focus of GCC investors and took a toll on regional markets. The S&P GCC shed 18 percent in the last quarter of the year as a result. Markets also became jittery in the last quarter with unusually large daily changes. Market volatility in Q4 increased evidently in comparison to the previous three quarters of the year.
The Peninsula
