Qatar Stocks Are Under Fire As Arab Allies Cut Diplomatic Ties 6

The crisis

On June 6, four US Arab allies (GULF) –  Saudi Arabia (KSA), Egypt (EGPT), Bahrain and the United Arab Emirates (UAE) – cut ties with Qatar (QAT) over its alleged relations with Iran. As a consequence, Qatar’s benchmark index, the QE Index, tanked 7.3%, the largest drop since 2009.

Major stocks in the Index lost 9-10% of their market value. Of the 44 companies in the Index, 13 stocks dropped 10% to hit their circuit breaker.  Qatar National Bank (QNBK) and Masraf Al Rayan QSC (MARK), the largest weighted stocks in the Index lost 6% and 9.9% respectively. The QSE Index has lost 9.8% YTD and is the worst performer among emerging markets. The iShares MSCI Qatar ETF (QAT) also plunged 9%. For more on Qatar’s stock markets, you can read our series Here is Why Qatar Is Failing To Enthuse Investors 

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Qatar’s credit risk also rose to record levels, as measured by its credit default swaps. Yields on Qatar’s $3.5 billion in bonds due in 2026 increased 23 basis points to 3.37%, the highest level since March.

Oil prices initially rose as well before dropping, as investors feared a supply glut on the expectation of blockage of trade routes in the region. Qatar is the largest supplier of liquefied natural gas in the world.

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The The US dollar also strengthened as investors betted on safe haven instruments like gold and currency.

Impact

On June 7, S&P downgraded Qatar’s debt ratings by one notch from AA to AA- after the Qatari riyal fell to 11-year lows on the back of its diplomatic conflict with other Arab nations. It also put Qatar’s credit ratings on credit watch with “negative implications” implying a possibility of a further downgrade.

Citigroup expects this diplomatic rift to have long-term implications for the Gulf economies. Citi analysts believe the current crisis is far more serious than the diplomatic incidents in 2014 and could have repercussions on the entire Gulf region.

In this series, we will study the potential impact of the Qatar crisis and assess the sectors and stocks to watch, and those that will be most affected. We will also understand how Qatar’s banking sector will be impacted along with fund flows to the country.

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