"The fact Qatar ended up almost 21 percent higher, and was one of the best-performing markets in the world, was more of a surprise to many," he added.
The technical factors which pushed passive inflows included increased weightings for a number of blue-chip Qatari stocks in MSCI and FTSE emerging indices, which was followed by an increase in foreign ownership limits to major Qatari companies, including Qatar Petroleum, Industries Qatar and Qatar National Bank.
"What was probably less expected was the scale of buying from active foreign investors. Qatar has long been an underweight for active global investors and 2018 was the year many decided to change that," Khan said.
Vijay Valecha, chief market analyst at Dubai-based Century Financial Brokers, said that alongside the increases to foreign ownership limits, investors were attracted by the dividend income offered by many Qatari firms, as well as the fact that infrastructure development in the country was continuing as facilities are brought forward ahead of the 2022 FIFA World Cup.
“The 67 percent rally of natural gas from the beginning to high in 2018 also helped in improving the macro-economic fundamentals of the country,” he said.
In terms of individual stocks, three of the country's top five stocks in terms of price performance last year were banks - Qatar Islamic Bank (2nd, up 56.5 percent), Qatar National Bank (3rd, up 53.4 percent), Qatar Commercial Bank (4th, up 36.9 percent).
Chiradeep Ghosh, banking analyst at Bahrain-based investment bank SICO, argued that “a big chunk” of the uplift in banks' share price was due to the easing of foreign ownership limits.
"That was the primary trigger, but there was pent-up demand," he added. "After the embargo sanctions the stocks fell, so they just needed a trigger to revive back.
"Overall, economic data which has been published by the Qatar government suggests GDP growth is coming back on track, there has been mild population growth, so the numbers, on the face of it, look fine," he said.
However, he warned that deposits in many Qatar banks have declined, and that liquidity rates have remained flat, while trading volumes have thinned out, leading him to believe that "valuations look a little stretched at this point" in the sector.
This isn't true of all of the country's banks, though, as two were among the worst performing Qatari stocks last year - Qatar First Bank and Doha Bank.
Qatar First Bank saw its shares decline by 37.2 percent in 2018 as the investment bank reported ongoing losses as the value of investments it had made continued to decline. For the nine months to September 30, the company reported losses attributable to shareholders trebling to 425.5 million Qatari riyals ($116.9 million), up from 139.6 million riyals a year earlier.
Doha Bank, meanwhile, has seen its share price decline by 22.7 percent over the course of last year due to concerns over the quality of its loan book, which is heavily exposed to the construction and real estate sector. A Q4 2018 report on Qatar’s real estate market by Dubai-based consultancy ValuStrat this week stated that residential capital values fell by 17.5 percent over the preceding two-year period.
“One concern is asset quality, and we published a report recently showcasing that Doha Bank will most probably have to raise capital,” Ghosh explained. “To meet capital adequacy ratios, they will either have to cut dividends, or raise capital, or do both.”
The bank's shares suffered a further blow in November when it was announced that they would be moved from the main MSCI Qatar index into a small cap index.
Qatar's top-performing share last year was Qatar Fuel, the fuel distribution company known locally as Woqod. Its shares jumped 62.7 percent during the course of last year.
“Historically, it has been a stock unowned by institutional investors - local or foreign - because of very stringent single-shareholder ownership limits,” Al Rayyan’s Khan said. “Not only were these limits increased recently, there also was anticipation of the stock entering the MSCI emerging market index. MSCI didn't actually end up adding Woqod to the EM index, but it will be included to the FTSE index in March."
The prospects for the Qatar market next year are less clear.
Mohamad Al Hajj, head of MENA strategy at Cairo-based investment bank EFG Hermes, said that some shares are now "extremely expensive" when viewed in terms of their fundamentals, and that a re-weighting of indices next year as new stocks from China, Argentina and Saudi Arabia are added to MSCI's emerging market index in May and in August is likely to mean passive outflows from Qatar shares. Khan agrees, forecasting outflows of around $250 million-$300 million from Qatar equities next year as a result of index re-weightings.
1. Woqod (Qatar Fuel Co): 62.74%
2. Qatar Islamic Bank: 56.51%
3. Qatar National Bank: 53.42%
1. Qatar First Bank: -37.23%
2. Doha Bank: -22.70%
3. Qatar Insurance: -20.61%
Click on the links below to see how other Gulf markets fared
(Reporting by Michael Fahy; Editing by Shane McGinley)
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