18 April 2016
Satish Kanady, The Peninsula

Healthy dividend yield makes Qatari market compelling: QIF

Nick Wilson is the Chairman of the LSE-listed Qatar Investment Fund (QIF). QIF’s primary objective is to achieve long term capital growth by investing in Qatari equities. Nick has over thirty-five years’ experience in hedge funds, derivatives and global asset management. In addition, he sits on the boards of a number of other public companies, including RAB Special Situations Company Limited and Epic Special Opportunities Plc, the owner of Whittard of Chelsea. 

Nick shares his thoughts to Satish Kanady on the questions how the fund stands out from competition and why Qatari stocks?

What is QIF’s Long-term outlook for Qatari equities? 

“We remain positive on the Qatari equities and believe that the recent sell-off in the market means that valuations are attractive, providing an entry point for investors. The QE index is currently trading at a 2016E PE of 11.6x (as at 6 April 2016) vs. its 10-year historical average of 12.63x, a discount of 8.2%.

“In addition, healthy dividend yield makes the valuation of the Qatari market compelling in comparison to its peers in the GCC. With strong infrastructure pipeline over the next few years  -over $200 billion will be spent before the 2022 FIFA World Cup - on-going diversification efforts, and strong macro-economic fundamentals the Qatari market stands out as an attractive prospect for investors. 

“Consider also, short-term catalysts such as upcoming upgrade of Qatar market by FTSE Russell to a secondary emerging market. According to research we have seen by Arqaam Capital the upgrade is expected to trigger passive inflows of about $850 million. Don’t forget that recent increases in foreign ownership limits by Qatari companies should also keep investment flow elevated.”

A review of Qatari market performance in Q1, 2016

“Qatari market was down just 0.5% in Q1 2016, despite falling 9.1% in January, the stock market rallied, posting gains of 4.3% in February and 4.9% in March. Of the GCC markets, the Qatar Stock Exchange gained the most during March. By contrast, peer such as Saudi Arabia, Kuwait and Bahrain, fell 10.0%, 6.9% and 7.0% respectively.

The telecom sector led the market in Q1, rising 19.9% along with a double-digit gain in the insurance sector. Consumer goods and services also posted a healthy double-digit rise during the quarter.

“And this outperformance is not just something we have seen in the last quarter; in fact from June 2014 to March 2016, the Qatar equity market posted the second best performance in the GCC region (after Abu Dhabi) and outperformed the MSCI emerging market index by 10.7%.”

What are the fund’s plans for re-positioning in terms of sector allocations? Do you have any plans to increase allocations? If so, to which sectors?

“QIF plans to continue to focus on companies with high growth potential, mainly driven by diversification efforts by the government and strong infrastructure pipeline ahead of FIFA 2022. Another key focus for us is on sectors with typically strong balance sheets, sustainable cash flows and stable dividend yield for example, banking, transport, consumer industries and utilities.”

Most GCC fund managers are lukewarm on equities and are positive on bonds, according to a recent Reuters survey. What’s your view on this?

“Certainly the recent economic slowdown and volatility in oil prices have caused many GCC fund managers turn bullish towards fixed income and bearish on equities. However, any further recovery in oil prices following the upcoming OPEC meeting in Doha (17 April) and any revival in demand for oil from global economies would be a huge positive for the GCC equity markets.”

Do you think oil prices will continue to weigh on Qatari equities?

“Qatar is in a better position to withstand the low oil price environment compared to its neighbors in the region, due to its stronger fiscal position, greater diversification of revenues, a large cushion of foreign assets and low public debt levels coupled with stable LNG revenues with good long-term contract visibility.”

Your thoughts on Qatar introducing margin trading? Has it really started working?

“As you will know, the Qatar Exchange has proposed the introduction of margin trading facilities for 20 highly capitalized and liquid companies listed on the exchange. This aims to help enhance market liquidity and would provide new avenues of funding channels for investors.

“Once operational, this will allow investors to borrow money from brokers to purchase more stocks than an investor would be able to buy normally, providing leverage to increase profit. We feel that the Qatar Exchange and Qatar Financial Markets Authority are making progress in the right direction to develop the capital market. However, we are cautious that it may take some time to reap the benefits from the initiatives. “

How is margin trading going to drive volumes?

“Margin trading will help in driving overall market volumes through increased supply and demand of securities. For investors, margin trading would allow them to take long-term position in the market and borrow funds to take additional positions. As a leverage mechanism, margin trading would increase liquidity in the market and which in turn would add to the depth of the market and support in price discovery. The move will provide additional revenue stream for brokers in line with international practices. “

Saudi has said it is going to double the size of its market by adding more companies. How is it going to influence Qatar’s market performance?

“Capital markets in the GCC region are in nascent stages and we are seeing many initiatives are being taken by authorities across the region to develop and improve their markets. “Saudi Arabia recently announced that it plans to almost double the size of its stock market via a series of IPOs and by making it easier for foreigners to invest. As part of this, Saudi is looking to attract privately owned firms to list and also privatize some of the companies currently owned by the government. 

“As far as Qatar’s market is concerned, we have seen the exchange is constantly working on increasing market participation by introducing various new practices such margin trading, increasing the foreign ownership limit, making listings easier by adopting a single party window system to name a few.

“In addition, the upgrade to Secondary Emerging Market is also expected attract passive inflows in the Qatari stock market along with the expected launch of SME index in Qatar Exchange.

These measures mean that Qatar is not likely to feel a significant impact from the growth of the Saudi market. In facts funds tracking emerging market indexes will not be ploughing funds into Saudi Arabia which currently holds frontier market status. Overall, it’s positive for the GCC region, as these developments will increase market participants and attract many foreign investors who may like to diversify their investments.”

Any tips, advice for investors?

“Qatari companies have a proven track record of creating long–term value for investors. Focus on companies with high growth potential and favor stable dividend yielding companies over the cyclical ones.”

How do you look at Qatari stocks in terms of valuation?

“Qatari stocks offer one the highest dividend yields in the GCC region. Perhaps more interestingly, the QE index is currently trading at a 2016E PE of 11.6x (6 April 2016) vs. its 10-year historical average of 12.63x, a discount of 8.2%, still providing attractive valuations for investors.”