The worst Qatar stock rout in nine months is creating a buying opportunity for some of the biggest Middle East investors, who say they’re undaunted by speculation the country will lose the right to host the 2022 World Cup.
Emirates NBD PJSC, whose wealth management division oversaw about $2.1 billion at the end of 2013, says it’s looking to add stocks because any impact on corporate earnings from the loss of the World Cup would be minor. Doha’s Al Rayan Investment LLC is also boosting equity holdings while Qatar National Bank Financial Services, the country’s second-biggest brokerage, is recommending investors buy shares of “fundamentally strong” companies. Qatar’s benchmark rose 0.7 percent today, trimming this week’s losses to 3.4 percent, the most since September.
For all the focus on the World Cup probe, the investors say the nation’s economic expansion and natural gas reserves will help rekindle the rally in one of the world’s top-performing markets this year. The QE Index lost more than $5 billion in stock market value after Britain’s Sunday Times reported June 1 that officials got more than $5 million to help Qatar win the rights. The nation’s bidding committee denies wrongdoing.
“The World Cup was icing on the cake, but it won’t damage corporate earnings in a significant manner,” Arjuna Mahendran, chief investment officer at the wealth management unit of Dubai-based Emirates NBD, said by phone. “We’ve been buying Qatar banks and telecom companies because of the immediate short-term revenue prospects, which are strong.”
The country’s 540 billion-riyal ($148 billion) benchmark index had soared over the first five months of the year, with the gauge touching a record on June 1 as its 14-day relative strength index reached overbought territory. The RSI index has since plunged to 54 after breaching the 70 level.
“Foreign institutional buying over the last few months has squeezed the market higher,” Akber Khan, director of asset management at Al Rayan in Doha, said. “There are still companies with excellent fundamentals and attractive valuations.”
The market is still up 27 percent this year after the declines, making it the fourth-best performer globally.
Qatar’s selloff comes about a week after the country almost doubled its foreign ownership limit on stocks to 49 percent. Overseas investors were sellers of Qatari shares yesterday, having offloaded 2 million riyals, data compiled by Bloomberg show.
The World Cup scandal adds to Sheikh Tamim Bin Hamad Al Thani’s woes. Since he took office a year ago, three neighboring countries withdrew ambassadors over Qatar’s foreign policy, a hostile Egyptian government accused the emirate of giving sanctuary to the opposition and the Syrian rebels backed by the emirate faltered in a three-year civil war.
A panel studying the alleged corruption will issue its findings in July and a re-vote is “a possibility,” according to a BBC interview with Jim Boyce, vice president of soccer ruling body FIFA.
Rashid al Mansoori, chief executive officer of the Qatar Exchange, said in an interview that the accusations are “noise” and the exchange is taking measures to support the market.
While many analysts are attributing the drop to concern that loss of the World Cup soccer games would scuttle investment projects, the decline is mainly the result of Qatar’s upgrade to emerging-market status from frontier market by index-provider MSCI Inc., according to Renaissance Asset Management in Johannesburg.
Qatar, which comprised more than 17 percent of the MSCI Frontier Market Index as of the end of May, has a weighting of 0.47 percent in the developing-nation measure. The country’s stocks traded for the first time as an emerging market this week.
“We attribute this to the fact that they are out of the frontier index and now constitute only a small part” of the emerging-market index, cutting into the country’s investor base, Sven Richter, head of frontier markets at Renaissance, said by e-mail. The corruption charges “would only affect the market if there was a re-vote,” he said.
Geoff Dennis, an emerging-market strategist at UBS AG, started coverage of Qatar this week with an underweight rating, citing the risk of losing the World Cup.
The Middle East nation, which holds the world’s third-largest natural-gas reserves, plans to spend as much as $200 billion as it builds stadiums equipped with solar-powered air conditioning, a railway network and roads to prepare for the most-watched global sporting event. Economic growth is set to accelerate to 7.8 percent by 2016 from 6.8 percent this year, Qatar National Bank said in an April report, while the median estimate of 13 economists surveyed by Bloomberg is for 5.5 percent expansion in 2014.
“The vast majority of these projects are to be implemented irrespective of hosting the World Cup, driven by needed infrastructure improvements, due to strong economic growth,” Andrew Brudenell, a London-based money manager at HSBC Global Asset Management, said by e-mail. “Our investments in Qatar have not been based on the country winning” the World Cup bid, he said.
Qatar National Bank, the nation’s largest lender, said in April its first-quarter profit increased 14 percent as loan growth accelerated amid infrastructure spending. Full-year net income is set to advance by 12 percent to 10.7 billion riyals, according to the mean estimate of 13 analysts on Bloomberg.
“The market is in stabilization phase,” said Abdullah Amin, Doha-based analyst at QNB Financial Services.. “We recommend investors take this opportunity and accumulate fundamentally strong stocks.”