Qatar equity market has broken out of technical downtrend: Credit Suisse

Local equity market in Qatar has enjoyed a stronger oil price-driven rally than expected

  
A trader uses his mobile phone behind his desk in front of the Qatar stock exchange board, in Doha February 4, 2014. REUTERS/Mohammed Dabbous

A trader uses his mobile phone behind his desk in front of the Qatar stock exchange board, in Doha February 4, 2014. REUTERS/Mohammed Dabbous

REUTERS/Mohammed Dabbous

January 26 2017 

The Qatari equity market has just broken out of its technical downtrend on stronger oil price driven rally but is likely to see a correction by March, according to Credit Suisse. Finding that the local equity market in Qatar has also enjoyed a stronger oil price-driven rally than expected, it said however, it is only just now that the market has broken out of its technical downtrend. “Despite this, we keep our underweight stance, as the market is likely to see a correction once its upgrade to FTSE secondary emerging market status is completed in March,” Fahd Iqbal, head of Middle East Research at Credit Suisse, said in a report. FTSE announced back in September 2015 that Qatar’s upgrade would be carried out in two steps, with a 50% tranche implemented in September 2016 and the remaining 50% in March 2017. 

The Qatari market enjoyed a strong 20% re-rating in the run-up to the first tranche, with a peak registering on the September date of implementation. “We believe a similar re-rating is under-way presently, with a peak likely to occur on or before the March date of implementation,” he said. Beyond the March implementation date, Credit Suisse continues to house concerns over Qatar’s valuations and overall growth outlook. On a price-earnings basis, Qatar is only “moderately expensive” and trades slightly above its long-term average, it said, adding but on a dividend yield basis, Qatar has moved from consistently being the highest yielding market to the middle of the pack, in a Middle East context. “This is important, as Qatar’s dividend yield has historically provided important support for the market — up until mid-2016, it provided an average 140 basis points greater yield than its larger GCC (Gulf Cooperation Council) peers (the UAE, Saudi Arabia and Kuwait),” Iqbal said. 

The oil exporting GCC economies are set to reap the benefits of higher oil prices and progress made on subsidy reforms, the report said, adding the Middle Eastern markets have enjoyed an impressive rally, with the region gaining 17% in the fourth quarter (Q4) of 2016. The key driver for this (rally) was the strong recovery in both risk appetite (post the US presidential election) and oil prices (particularly after the unexpected production cut deal by oil producers), according to Credit Suisse. For most investors, the latter would seem to be the obvious driver for Middle East equities, but the region has historically not shown any greater correlation to oil prices than the rest of the world due to the lack of energy-related equity listings. “With oil prices having improved, oil is becoming less important a driver to Middle East equities (correlation is topping out), but we have no doubt that a sharp move in oil prices would once again affect regional equities,” Iqbal said. 

Finding dividend payments as “strongly supportive” for the regional markets, he said the majority of Middle East companies make annual dividend payments in calendar Q1 (first quarter) and, as a result, investors tend to position themselves accordingly towards the end of the preceding Q4. “Given the high level of government ownership across the major listed equities in the region, the payout ratio has historically been above the global and emerging market average,” he said, forecasting economic growth in the Middle East to improve to 2.2% in 2017 from 1.4% in 2016, while the GCC is expected to grow 2.3% in 2017 from 1.7% in 2016.

© Gulf Times 2017


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