Rashid Al Mansoori, CEO, Qatar Exchange
24 Feb 03:56 AMSector : Banking & Finance Country : Qatar
Ready to Reap Upgrade Rewards
What do you think will be the most immediate impact of MSCI’s upgrade?
By upgrading our market status, Qatar joined other emerging markets, alongside Brazil, Russia, India and China, in the MSCI Emerging Markets Index, which is tracked by investors with more than $6 trillion in assets. MSCI Emerging Markets is the most widely-used index by investors in developing markets. Because much of the funds tracking the index are passive investors, inclusion in the index compels additional capital to be funnelled to the markets it covers. The upgrade will make QE earn a place on the global investment radar with huge funds inflows as a result of joining the higher tier. An upgrade would not only ensure increased visibility of existing listed companies before foreign financial powerhouses, but would also entice other entities, including family-owned companies, to go public. We have already seen an increase in account opening with the exchange by foreign institutions and gradually these will increase their investments in the market, especially the stocks that will be included in the MSCI EM index. According to MSCI and research, Qatar will have around 0.45 percent weight in the index and could attract $500 mn to $1 bn additional capital to the market. There are even higher estimates floating around. We have seen an increase in account opening activities by international investors already.
Will the upgrade affect the relationship with NYSE Euronext?
Over a period of more than four years of strategic partnership with NYSE Euronext, Qatar Exchange has achieved significant progress and made remarkable achievements in terms of developing infrastructure and systems and the diversification of investment tools and services provided to investors. While NYSE Euronext has sold its 12 percent equity stake in the exchange to Qatar Holding, the sovereign wealth fund of Qatar, the relation will continue with regards to technology and business support. For example, Qatar Exchange will continue to use the UTP system, which was implemented in 2010. Also in specific business development areas the two exchanges can work closely together. Looking ahead, cooperation between the two sides will continue with the development of future mutually-beneficial business initiatives serving investors and issuers of a wide range of financial instruments.
How can QE benefit from the current boom in infrastructure projects?
Infrastructure is vitally important. There will be huge infrastructure projects which will be established over the next five years in projects such as a new airport, a new seaport and a rail and metro system. Total infrastructure investment, including the 2022 FIFA World Cup, will be about $200 bn over the coming decade. The public spending on mega infrastructure development projects will benefit the companies listed on QE, which will play a part in executing these projects, and stimulate the creation of new companies. This spending process will positively impact QE’s performance, reputation and international trust, especially in light of the fact that the relationship between the national economy, the stock market and listed companies is a complementary relationship where the exchange is a reflection of the national economy. More generally, economists expect the economy of Qatar to develop strongly, amongst others following the significant investments in infrastructure. When the economy flourishes, the exchange is likely to follow.
How can QE assist in developing such projects?
Qatar Exchange will assist existing and new companies to tackle infrastructure projects. Thus, the creation of the Qatar Exchange SME Market under the name “QE Venture Market” is an essential step towards the advancement of an important sector. In general, increasing the number of joint stock companies has a significant positive impact on the economy as a whole. Joint stock companies are often created by a large group of founders willing to invest in large capital projects, such as energy, telecommunications and infrastructure projects, where it is difficult for individuals to do heavy lifting on their own. The second step towards our contribution to infrastructure projects was the creation of a bond market and yield curve, which will provide companies and government organizations with a new tool to fund their growth and projects. Therefore, together with the Qatar Central Bank, Qatar Exchange is in the process of developing the bond market in Qatar, especially bonds denominated in Qatari Riyal. The first steps in this process are the listings of T-Bills and government bonds on QE. In the future, we expect to see listings of corporate bonds and project bonds, which would provide an additional tool of financing of the infrastructure projects.
How can the private sector, including family owned businesses, be tempted to list on the stock exchange?
The creation of “QEVM”, the market of emerging companies in the Qatar Exchange that targets small and medium enterprises, is an essential step towards the advancement of an important sector such as the market of emerging companies, for it generates a strong motivation for emerging companies to look for a new source of funding by raising their capital without having to face debt risks. It is within this context that we want to focus on the importance of transforming family-owned businesses into joint stock companies, as a first step towards incorporating them in the financial market. Such action would ensure their continuity and growth, while helping in developing the market, expanding its base and diversifying its sectors. It would also reflect the commitment of those companies to disclosure and transparency standards and regulations, and to governance requirements to comply with the best global practices.
What are you expecting from the government and regulatory authorities to help QE grow further?
We, as the principal securities market, are but one component in the larger Qatari capital markets. We are keen to implement best international practice and our ambitions extend to developing initiatives which expand our capabilities and our reach. To this end, we seek both regulators and government authorities' support in achieving these goals. This support extends across the enactment of appropriate regulation and legislation and the granting of licenses and approvals in an efficient and manner. Of particular significance are the changes and improvements required in both regulation and legislation to further develop the capital markets within Qatar. In particular, the regulatory framework related to securities lending and borrowing requires further enhancement and approval is sought to allow margin trading to be made available for investors by suitably licensed and managed brokers. Legislation is required to ensure that Foreign Ownership limits applied to listed securities remain appropriate to the ambitions of the state, and a review of both listing and ongoing reporting rules is required to ensure compatibility with best practice, and should include guidance on the listing of QFC and foreign companies. The listing process and the advisory regime requires further clarification, particularly regarding service levels and the requirements of prospective issuers.
Can you explain the role of QE in the National Vision 2030?
The National Vision aims to develop a diversified and competitive national economy and to position the State of Qatar to be a regional center of economic activities and high value financial services through prudent management of the economy based on enhancing competition, attracting more investment and stimulating growth, as well as the optimum utilization of economic resources. Based on this vision, the primary aim of Qatar Exchange is to support Qatar’s economy by giving investors a platform through which they can trade fairly and efficiently. The QE is part of a comprehensive national strategy that aims to establish Qatar as a world-class international market and reinforce the country’s position as a regional financial center.
How do you see the position of QE compared to other regional markets, particularly Dubai?
We believe that QE is well positioned to play a regional role. We are an international exchange with strong domestic roots. Our core function is to facilitate the Qatari economy, attracting international investors in the process. We have state-of-the-art technology and adhere to international best practices. We will continue to develop products, such as ETFs, that are attractive for local and regional investors. Regionally we are confident that QE is now positioned and recognized as one of the leading exchanges, while internationally we will keep working hard to establish ourselves as one of the most attractive stock exchanges for investors around the world, taking advantage of our solid and advanced infrastructure and the fast growing economy of our country.
Where do you see QE five years down the line?
Qatar is an open economy and the development of the financial sector is one of the pillars of diversification of the economy. Asset management in particular is a key aspect and Qatar is making progress. Development of the capital markets infrastructure is clearly an important aspect of this. Efficient and well established capital markets contribute to the growth of the economy since they facilitate efficient capital allocation, allocating funds to those projects and companies that generate the highest return. The listing prospect on the QE is promising, especially in view of the fact that economic growth and spending on infrastructure development requires listings and boosted liquidity. As you know, the listing issue strongly depends on the liquidity in the market and the government support of new listings. QE will continue to develop the cash market in terms of liquidity, number of listings, and products diversification. We also review the overall strategy for Financial Markets in Qatar with market participants, regulators and other relevant national institutions to ensure that Qatar's economy, the QE and our customers benefit optimally from the MSCI Emerging Markets upgrade.