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WorldAugust 1 2014

Qatar Investment Fund chairman puts out the international welcome mat

Qatar Investment Fund is overcoming the traditional hurdles to investment in Qatar, allowing investors to tap the country’s stellar growth, its chairman tells James King.
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Qatar Investment Fund chairman puts out the international welcome mat

Since Qatar imposed a moratorium on further gas developments in its giant North Field, the small Gulf country has made rapid progress in shifting its economy to have more of a non-hydrocarbon focus. In 2015, real growth in gross domestic product is expected to hit 7.8%, according to figures from Qatar’s Ministry of Development Planning and Statistics, as this more diversified economic framework, coupled with infrastructure investment, pushes the country towards an increasingly sustainable economic future.

Nevertheless, the country’s vast oil and gas wealth has insulated Qatar from external shocks. In 2013, as a number of high-profile emerging market currencies suffered from extreme volatility in the wake of the US Federal Reserve’s tapering deliberations, Qatar’s economy remained stable.

“Qatar’s growth is not really correlated to the broader emerging market index. When the BRIC [economies of Brazil, Russia, India and China] were falling apart, Qatar was doing fine. This is because the country’s economic trajectory has no significant relationship with either the developed or the emerging markets. It has its own metrics,” says Nicholas Wilson, chairman of the Qatar Investment Fund (QIF).

Tapping into growth

Yet, tapping into this growth opportunity has traditionally been difficult for foreign investors. Hindered by local regulations covering external investment, the process of investing in Qatari stocks is both onerous and expensive. To that end, QIF was incorporated as a closed-end investment company in 2007 to provide foreign investors with exposure to Qatar.

“Qatar offers an attractive combination of a stable economy, strong earnings growth, low valuations and high-dividend yield, providing a compelling investment opportunity to global investors,” says Mr Wilson.

Since its inception, the QIF has leveraged its understanding of the local market to gain exposure to the high-growth sectors of the economy. This has required the fund to take substantial holdings in the country’s financial services sector, and in particular, its largest banks. “The emphasis is very much on the financial services sector because that’s such a huge component of the index. More than 40% of the fund’s total investments are geared towards financial services,” says Mr Wilson.

Of the fund’s top 10 holdings, four are banks. These include Qatar National Bank, Masraf Al Rayan, Doha Bank and the Commercial Bank of Qatar. This banking sector concentration provides exposure to areas of the economy that remain off-limits to private investors. For now, the upstream energy industry and large swathes of its downstream equivalent, barring some petrochemicals activity through Qatar Exchange-listed Industries Qatar, are wholly owned by the state.

“The banking sector is a very good indicator of the country’s growth, particularly as private investment in the hydrocarbons industry is prohibited. As such, banks are a good proxy for the economy because the hydrocarbon income gets funnelled into the economy via big infrastructure projects which are backed by the country’s major banks,” says Mr Wilson.

Fresh set of challenges

In June, Qatar’s investment prospects received a boost following the country’s upgrade by index provider MSCI from frontier to emerging market status. This promotion has provided a fresh set of challenges for the Qatar Exchange, as it contends with new investor inflows as well as the related pressures and responsibilities that come with emerging market status.  

“In the first month of the upgrade, the Qatar Exchange experienced a degree of volatility. A lot of the local investors knew that the tracker funds would have to enter the exchange in the first days of that month, following the MSCI upgrade. Accordingly, local investors were gaining significant position in listed companies in preparation for the entry of the tracker funds in the first week,” says Mr Wilson.

Despite these early challenges, the MSCI upgrade should go some way to improving liquidity levels on the Qatar Exchange. For the QIF, this progress is encouraging. Following its inception, the fund has traditionally outperformed the index, though its returns have been most impressive in the past 12 months.

“Last year, QIF’s net asset value per share increased by 27%, outperforming the index by 3%. The share price rose by a similar amount taking total shareholder returns to 30%, including a three cent dividend paid in January 2013,” says Mr Wilson.

With non-hydrocarbons growth expected to accelerate swiftly over the medium term, the outlook for Qatar’s economic growth is bright. Moreover, as the state rolls out its vast infrastructure development plans, including transport, housing, electricity and water generation projects, the opportunities for investment will become increasingly abundant.

“Qatar is poised to become the jewel in the emerging markets crown,” says Mr Wilson.

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Read more about:  Middle East , Qatar