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The Qatari Contradiction

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In spite of being one of the richest countries in the world and an aggressive global investor, Qatar saw interest in its funds industry sliding in 2011, writes Zawya’s Celine Salloum.

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Qatar continues to back asset management industry

By Celine Salloum of Zawya
Qatar, a tiny country situated on a small, thumb-shaped neck of land off the eastern side of the Arabian Peninsula, and once one of the poorest Gulf States, has been ranked as the world’s richest country per capita by Forbes magazine. The oil and gas sector dominates the economy with an estimated 56% of nominal GDP in 2011. Qatar, which will host the 2022 FIFA World Cup and recently lost a bid to host the 2020 Olympic Games, has been a high-profile global investor.

The development of Qatar as a regional hub for asset management is being strongly supported by the Qatar Financial Center Authority, the commercial arm of the Qatar Financial Center. While all types and categories of collective investment funds are permitted within the QFC, steps have been taken last year to accelerate the development of the asset management industry both at the retail and institutional levels.
This includes revised rules to allow authorized firms to operate foreign funds and for foreign funds to be sold to domestic retail customers as well as the introduction of one of the friendliest tax regimes in the world. QFC-registered companies are subject to a 10% corporation tax charged on all locally-sourced profits.

The GCC mutual fund industry has 480 funds with assets of USD 34.1 billion as of end-June 2011. The dataset includes locally domiciled funds, local company sponsored funds irrespective of domicile, and funds with the GCC or one of the constituent markets as their geographic focus. According to the Zawya Funds Monitor, there were seven domiciled funds in Qatar as of the fourth quarter of 2011 and around USD 120 million in assets Under Management, a decline of almost 26.83% from the third quarter (USD 164 million).
List of Qatari Funds (as on April 3, 2012)

Source: Zawya Funds Monitor

 
Mutual fund assets in the GCC shrank 6% to USD 34 billion in the first half of 2011. According to the Zawya Funds Monitor, Qatari funds witnessed an outflow of almost USD 7.08 million during the fourth quarter of 2011.

This is in spite of the Qatar stock market being the best performer in the region during 2011. All GCC markets ended on a lower note in 2011, barring Qatar Exchange, with 42 listed companies, which managed to inch marginally higher by 1.12%.

In 2012, however, Qatar Exchange has been the worst performer to date, while Dubai and Saudi Arabia are up 23% and 18%, respectively.

A number of factors have worked against Qatar. Saleem Khokhar, head of equities at National Bank of Abu Dhabi’s asset management group, lists these as: “Rich valuations due to strong performance last year, a move by the Qatar banking regulators to reduce dividend payouts by Qatari banks, and Qatar’s reluctance to raise foreign ownership limits, effectively excluding it from a possible MSCI upgrade to emerging market status at the June 2012 review.”

Saudi and UAE companies announced the best dividend distributions this year, causing a flood of retail investors to move away from Qatar, according to Haissam Arabi, chief executive of Gulfmena Investments.

Qatar, which lost 1.2% in April, was the only GCC market with a year-to-date loss.

QE Performance (YTD – 2012)
Source: Zawya

Qatar Exchange closed on April 30, 2012 at 8,703.64, almost a 1% decrease from the previous month’s close. The exchange continues to take steps intended to improve liquidity, accessibility and efficiency. In March, it announced the adoption of delivery versus payment (DVP) rules to improve the clearing and settlement process.

The exchange also announced the launch of equity indexes to complement the benchmark index. These include All Share Index and Total Return Index, to help the investors monitor overall market performance and that of various sectors on a real-time basis. These indices went live on April 1, 2012. The exchange is also planning to launch exchange-traded funds (ETFs).

The possibility of bringing Qatar into the MSCI Emerging Markets index group would be very beneficial and would almost inevitably see an increase in interest and flows. It would also help expand the exchange’s membership base.

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