In a year when emerging markets have been doing well for themselves in terms of equity performance, Qatar is having a difficult time. As of May 18, 2017, the MSCI Qatar index is down 2.6% for the year.
The index had not had a great 2016 either as it was up just 2.3% for the year, much lower than 8.6% returns posted by the MSCI Emerging Markets index as well the 9% provided by the index for neighboring United Arab Emirates.
Similar to Russian equities, which we’ve looked at in the previous article, Qatari stocks have been negatively impacted by relatively depressed energy prices. This impact is visible on the returns of stocks from the sector in the iShares MSCI Qatar Capped ETF (QAT) – the only ETF traded on US exchanges which invests exclusively in Qatari stocks.
Both of the ETFs holdings from the sector – Qatar Gas Transport Company (Nakilat) Q.S.C. and Gulf International Services Q.S.C. – have contributed negatively to the sector in YTD 2017.
However, energy is only the second worst performing sector of the QAT. Industrials has been the worst performer for the year so far, driven down by two of three holdings – Industries Qatar and Qatar Navigation.
Meanwhile, Islamic lender Masraf Al Rayan, even after posting a 6.5% decline in its first-quarter net profit, has been the biggest positive contributor to the QAT this year.
View on Qatari equities
Qatar has the third largest proven gas reserves in the world according to the BP Statistical Review of World Energy and had contributed to 5.1% of global production in 2015. Thus, natural gas prices impact Qatari equities to a great degree and even though energy stocks themselves form less than 5% of the QAT, they have an indirect impact on other sectors.
Given that natural gas prices, as tracked by the United States Natural Gas Fund LP (UNG), are down 19% for the year, Qatari equities are in the red.
Another major factor that has resulted in poor performance is related to individual stocks in terms of disappointing corporate results. More long-term issues are related to transparency and disclosures which have resulted in foreign investors reducing exposure to Qatari stocks.
Referring to these issues, Akber Khan, Senior Director, Asset Management at Al Rayan Investment, told The Peninsula in early May, “When Qatari investors have been net sellers of two and a half billion dollars of local equities since the beginning of 2016, it is difficult for foreign investors to be enthusiastic.”
Company-specific factors are expected to drive equity performance going forward and investors should look at this in light of changes in natural gas prices. Short-term investors may need to look elsewhere for better returns.