Qatar seen taking over the lead in GCC stocks rally

Qatar’s stock market has been witnessing a lacklustre performance so far this year as compared to its Gulf peers. But a surge in prices this week suggests it could now start to outperform the region, boosted by healthy corporate earnings, traders and analysts say.

The Qatari market has been neglected during the regional bull run that began in January, because investors saw more value in markets such as beaten-down Dubai, up 24% this year, and Saudi Arabia, up 21%. By contrast, Qatar’s main index has gained less than 0.1% in 2012.

This pattern could be changing, however. Dubai has essentially moved sideways in the past three weeks while the Saudi Arabian index, while continuing to hit fresh highs, has seen its 14-day momentum — a measure of the strength of its uptrend — fall sharply since early March.

Much of this year’s gains in the United Arab Emirates and Saudi Arabia have been the result of retail money piling into small-capital stocks in search of short-term profits. This leaves the markets vulnerable to pull-backs; Dubai mortgage lender Tamweel, for example, more than doubled this year but is down 23% from its early March peak.

If these markets falter, at least temporarily, Qatar may benefit as regional investors seek markets that have not already been driven up sharply.

“Expect money to flow into Qatar for the next week or so to offset declines in other markets,” said Amer Khan, fund manager at Shuaa Asset Management in Dubai.

“At the end of the day, money will chase returns and I think the returns are there in Qatar. I would expect companies to trade at premiums because of the clarity on government spending.”

Investors in Qatar were disappointed earlier this year by 2011 dividends, which were smaller than some had hoped. But the index hit an 11-week closing high yesterday, suggesting an increase in buying interest.

Khan said stock valuations in Qatar were not expensive compared to regional markets. The Doha index is now trading at about 10 times projected 2012 earnings, according to Thomson Reuters data, against roughly eight times for Dubai and 13 for Saudi Arabia.

Commercialbank of Qatar is at 8.9 times this year’s estimated earnings compared to a range of about 8-34 in the past nine years. Doha Bank is at 7.35 times compared to a range of 7-50. Industries Qatar is at 9.1 times; in recent years it has traded around 12-25.

“Doha’s attractive fundamentals remain unchanged and we expect it to get back in focus, particularly since the UAE’s rally has paused and that of Saudi Arabia has peaked,” said Sleiman Aboulhosn, assistant fund manager at Al Masah Capital.

One damper on the market is delays in plans for lenders such as Doha Bank to launch brokerage arms, because restrictions by regulators have made the business less attractive than hoped.

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