Overlooked Qatar shares may hold a surprise

Qatar stocks have been overlooked this year during a boom in some neighbouring Gulf markets, but new financial reforms and attractive valuations could pave the way for a rebound.

Concerns about the slow pace of Qatar’s massive infrastructure building programme has weighed on the Doha stock market this year. Trading volumes have also dropped significantly since mid-June with the summer lull kicking in and initial earnings reports presenting a mixed picture for investors.

Qatar National Bank, the country’s largest lender by market value, this month posted a 16.7 per cent jump in second-quarter profits, matching forecasts. Qatar Islamic Bank missed estimates, reporting a drop in net profit.

Trading is likely to be muted as Ramadan began over the weekend, but could pick up soon after.

Qatar announced on Wednesday financial reforms and relaxed trading rules that could boost sentiment although they will take time to come into effect.

Valuations are also attractive.

Qatar’s benchmark stock index is trading at a price to earnings multiple of 8.7 times, while Saudi Arabia’s is at 11.70 times and Dubai’s is at 9.8 times.

“The whole market is undervalued. There’s easily a 15 to 20 per cent upside to fall in line with peers,” said Ahmed Shehada, head of trading at Qatar National Bank Financial Services.

“I expect the market to pick up into the second week of Ramadan. Investors, mostly Qatari corporate and retail, will be returning from summer [holidays] and getting back to business. A lot of people are sitting on cash.”

Qatar’s economy is forecast to grow by 6.3 per cent in 2012, much slower than last year’s 14.1 per cent expansion as the impact of decades of expansion in its gas output levels off, but economic growth is still set to outpace all its Gulf peers.

Financial reforms unveiled on Wednesday include lengthening the settlement time for local investors’ stock trades and expediting the creation of banks’ brokerage arms. Approved local investors will have up to three days for payment settlement instead of having to make an upfront payment as at present.

This is expected to spur activity among local investors although it could take a few weeks for investors to benefit as the changes are implemented.

Planned infrastructure development projects as the country gears up for the Fifa World Cup in 2022 had been seen as a catalyst for investing in Qatar shares. But progress has been slow and the mega-projects are yet to be tendered.

“People are hoping some of the bigger projects will be announced by year-end or early next year,” said Yassir Mckee, wealth manager at Al Rayan Financial Brokerage.