By Satish Kanady
DOHA: The non-hydrocarbon sector will drive Qatar’s stock market performance over the long term. Though, stocks that are directly linked to the energy sector are few on the Qatari bourse, many are indirectly exposed to energy prices, said a top investment banker.
Earlier in the decade, extremely strong growth in hydrocarbon GDP helped Qatar enjoy the highest growth of any county. Over the last few years, however, the pendulum has swung and the private sector has seen the benefits far more strongly. Real, non-oil GDP is growing 8 or 9 percent a year and some companies in this area are achieving 20 percent, or greater, revenue growth.
The positive multiplier of many years of healthy growth away from energy has had an impact across a number of sectors. The government’s focus on the private sector will continue to provide a supportive backdrop for many companies, Akber Khan (pictured), Senior Director-Asset Management, Al Rayan Investment told The Peninsula in a recent interview.
While there are only two or three companies listed on the Qatar Stock Exchange whose profits are directly linked to oil prices, many are indirectly impacted.
As an example, the fall in oil prices has reduced government revenues, which in turn has pressured deposits across the banking sector and reduced profitability. Over the last few quarters, sentiment for the market as a whole has been driven by moves in oil.
While not all companies will benefit, the pace of Qatar’s non-oil sector growth should remain robust in the coming three to five years given the considerable expenditure that is still to come. As reaffirmed in the 2016 budget, spending shall continue for a number of significant projects across key sectors. Stock market volatility in the last few months and the fall in daily traded volumes during 2015 are symptoms of poor liquidity and the underlying uncertainty in local, regional and global markets.
But volatility is not always a negative for investors. “While volatility can fuel panic, it also brings opportunities. Without it there would not be opportunities to buy at lower prices or to sell at higher levels. At Al Rayan, we try to take advantage of unjustified market moves, whether on the way up or down.”
On the question of exposure to real estate, Akber noted; “For now we are in an environment where there are steady increases in rents and strong occupancy levels. While this lasts, it is a happy environment for landlords and investors.” On Al Rayan’s allocation to banking stocks he said: “Despite it being a significant part of the index, historically we have had low exposure to the banking sector in Qatar. Our investing is not based on weights of a particular stock in an index. It is based on conviction which comes from rigorous in-house analysis of a company’s prospects over the coming 24-months.”
Over the past few years, even before the fall in the oil price, a number of banks were struggling to show strong profit growth because of aggressive competition and an over-banked market.
The very high margins and spreads banks had previously enjoyed were squeezed and put pressure on profits. We have only invested in one or two banks which were being buoyed by internal restructuring or management change, he said.
THE PENINSULA
