7 February 2017
Nick Wilson, chairman of London-listed Qatar Investment Fund plc

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International investors are still afflicted by groupthink when it comes to the Gulf and Middle East region. As always with investment, the devil is in the detail. Or more accurately the opportunity is in the detail, and it is not always easy to find.

The Gulf, defined as GCC (the Gulf Cooperation Council of Saudi Arabia, Kuwait, UAE, Oman, Bahrain and Qatar) is still in the shadow of the oil price plunge we saw over the last two years. A region heavily reliant on hydrocarbon revenues is bound to suffer when the price of that commodity falls, at one point, 80 percent to $26 a barrel. But not all the economies are the same, and the oil price has recovered significantly to $56. While this isn’t the earlier $100 a barrel, for some GCC economies it is a price they can quite happily live with.

Take Qatar. The government there has been encouraging diversification away from hydrocarbons for years, and this is bearing fruit. Nearly 70 percent of Qatar’s GDP is non-hydrocarbon and the non-hydrocarbon sectors continue to grow nearly twice as fast, at 4.7 percent pa. News that Qatar’s income from visitors has surged 400 percent since 2010 – to $15 billion a year – is another sign that this isn’t an economy reliant on oil and gas. Qatar and its capital city Doha is attracting white collar workers and businesses in the financial sector as well as hospitality and tourism activity in the lead up to the FIFA 20122 world cup. Qatar’s vast infrastructure investment programme continues with minimal trimming, helped by the fiscal prudence that saw the 2017 government budget drawn up on expectations of a $45 oil price (the lowest budgeted oil price in the GCC). Qatar’s fiscal deficit is set to fall in 2017 and is small compared to the reserves built up over earlier years.

Qatari companies continue their long term trend of growing their profitability, helped by a growing economy and a population rising nine percent a year. As a stockmarket the Qatar Exchange is the second largest in the GCC region, behind Saudi. In March its upgrade by index provider FTSE from frontier to emerging market will be complete, reflecting developments in the size of the Qatar Exchange and its accessibility to international investors. Qatar is yet again the richest country in the world in terms of GDP per capita, at $140,649 compared to second placed Luxembourg’s $97,662.

Projects such as the Doha metro and the new airport should establish the nation as a business hub, with world-class transport and educational facilities and will allow it to continue attracting skilled expatriate workers into the non-hydrocarbon industries.

Despite all of this the valuation of Qatari equities is undemanding. After a flat 2016, the Qatar Exchange trades on a forward multiple of 12.7 times 2017 earnings and this year is expected to yield 3.9 percent. This compares favourably to developed world markets trading on higher PEs, with lower yields (US equities yield half that of Qatari equities) at a time when these markets are at or near their all-time highs.

There have been plenty of reasons for investors to disregard GCC countries like Qatar in recent months. The investment inertia that is still in place may present a profitable opportunity for investors prepared to take a different view.

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