Identifier
Created
Classification
Origin
05DOHA861
2005-05-15 09:09:00
UNCLASSIFIED
Embassy Doha
Cable title:  

DOHA SECURITIES MARKET OPENING TO FOREIGN

Tags:  ECON EFIN ETRD QA 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 03 DOHA 000861 

SIPDIS

STATE FOR NEA/ARPI, INR/EC AND EB/CBA
DEPARTMENT PASS TO USTR-JBUNTIN
USDOC FOR 4520/ITA/MAC/ONE-MTALAAAT AND
4520/ITA/MAC/AMESA/OME-CLOUSTAUNAU
USDOE FOR GEORGE PERSON AND GINA ERICKSON

E.O. 12958: N/A
TAGS: ECON EFIN ETRD QA
SUBJECT: DOHA SECURITIES MARKET OPENING TO FOREIGN
INVESTMENT FUELS GROWTH AND CONCERNS

REF: (A) 04 DOHA 338 (B) 04 DOHA 54

UNCLAS SECTION 01 OF 03 DOHA 000861

SIPDIS

STATE FOR NEA/ARPI, INR/EC AND EB/CBA
DEPARTMENT PASS TO USTR-JBUNTIN
USDOC FOR 4520/ITA/MAC/ONE-MTALAAAT AND
4520/ITA/MAC/AMESA/OME-CLOUSTAUNAU
USDOE FOR GEORGE PERSON AND GINA ERICKSON

E.O. 12958: N/A
TAGS: ECON EFIN ETRD QA
SUBJECT: DOHA SECURITIES MARKET OPENING TO FOREIGN
INVESTMENT FUELS GROWTH AND CONCERNS

REF: (A) 04 DOHA 338 (B) 04 DOHA 54


1. Summary. On April 3 the Doha Securities Market (DSM)
opened up to allow greater yet limited foreign investment in
all sectors of the economy. The opening of the DSM has
created a lot of excitement and speculation among Qatari
investors who see opportunities to create wealth. However,
foreign investors have been reluctant to investment in the
DSM due to several concerns regarding legal protection and
transparency of information. There are also concerns among
Qataris that local investors could be adversely impacted due
to their lack of understanding about investing in the stock
market. End Summary.

EMIR'S VISION FOR DSM


2. The DSM is an important part of Emir Sheikh Hamad bin
Khalifa Al-Thani's vision for the Qatari economy. The Emir
is focused on developing a modern, diverse and dynamic
economy that creates wealth for the state and its citizens
while reducing dependence on the government, provides
business and employment opportunities for Qataris, and
attracts foreign investment (Ref A). The DSM was established
in 1995 by Emiri decree to privatize state companies and to
allow Qataris to become actively involved in Qatar's economic
development and prosperity.

GROWTH OF DSM


3. In 1997, the DSM opened with an initial market
capitalization of Qatari Riyal (QR) 5 billion or $1.4
billion (Ref B). According to DSM statistics, market
capitalization reached $90 billion at the end of March 2005.
The daily trading volume has grown from QR 5 million ($1.4
billion) in 1997 to QR 500 million ($138 million) during the
first three months of 2005. From January to March 2005 the
DSM share price index grew 45%. In 2004, the DSM appreciated
65% in comparison to 2003. In 1997, there were 17 companies
listed when the DSM opened and now there are 31 companies
being traded in primarily four sectors: banking, insurance,
cross-border services (GOQ monopoly Qatar Telecomm or Q-Tel),
and industry dominated by state-owned companies like Qatar
Steel Company (QASCO),Qatar Petrochemical Company (QAPCO),
Qatar Fuel Additives Company (QAFAC),Qatar Fertilizer

Company (QAFCO) and Qatar Vinyl Company (QAVCO),which are
collectively known as Industries Qatar.

REASONS BEHIND DSM GROWTH AND SPECULATION


4. Qatar's booming economy, the GOQ's ambitious economic
development plans, foreign investment in the hydrocarbons
sector, excess liquidity in the region and speculation are
the reasons behind the growth of the DSM. Qatar's GDP
growth has averaged about 15% between 1999-2003. In 2004,
GDP growth was estimated at 20.5% or 9% in real GDP terms
indexed for inflation. The economic growth has been fueled
by high oil prices, the diversification of the energy sector,
particularly the development of Qatar's natural gas
reserves, and a boom in construction, infrastructure and real
estate development.


5. Qatar has an ambitious development strategy which has
attracted more investment in the DSM. The GOQ plans to
invest over $50 billion in the next ten years in roads and
infrastructure development, health and sanitation projects
and public utilities. It is estimated the GOQ will invest
$150 billion in the energy and industrial sectors. The GOQ
is also providing incentives to the Qatari private sector to
invest in housing, office and real estate development,
retail, entertainment and tourism.


6. Qatar has attracted an estimated $100 billion of
investment in the energy sector, with approximately $60-70
million coming from U.S. energy companies. It is estimated
that Qatar will invest and attract over $50 billion in the
energy sector in the next ten years.

7. Excess liquidity is another factor behind the DSM's
growth. The September 11, 2001 terrorist attacks, Qatar's
booming economy and ambitious economic development plans have
enticed Qataris and other Arab nationals to invest in the
region. A significant number of Qatari companies and
individuals and profiting from the economic growth in Qatar
and the region. They see the DSM as an opportunity to create
additional wealth.

DSM OPENS TO FOREIGN INVESTORS


8. The opportunity for limited foreign investment in the DSM
is arguably the primary reason for the DSM's growth and
market speculation. Local economists, financial analysts and
stock brokers said the January 11, 2005 announcement allowing
limited foreign investment in the DSM created excitement and
triggered speculation throughout Qatar. Many Qataris
invested huge sums of money right after the announcement in
anticipation of foreigners and non-Qatari residents eagerly
investing in the DSM. There are stories that some Qataris
quit their jobs to devote their time to investing in the DSM.



9. On April 3, Law No. 31/2004 was enacted to allow foreign
participation in the DSM. Foreigners and non-Qatari
residents are eligible to buy Qatari equities limited to a
25% cap of the listed company's shares open for trading.
Foreign investors will not be allowed to access the primary
market (initial public offerings or IPO). GOQ officials said
this cautious approach is to protect the market from heavy
speculation which occurred in other GCC markets and resulted
in heavy losses to local investors. In addition, the GOQ
does not want foreign domination of the Qatari capital
market.

FOREIGN INVESTORS CAUTIOUS ABOUT DSM


10. Since the DSM opened to foreign investment, international
companies and non-Qatari residents have not rushed in to buy
shares as anticipated by Qataris. The lack of anticipated
foreign investment has caused corrections in the stock
market. The GOQ and private industry reported the stock
market has lost almost 26% of its peak value, which on May 1
was QR 85 billion ($24 billion dollars). This is a
significant amount of money given Qatar's estimated GDP for
2005 is $23 billion based on a conservative oil price of $19
barrels per day. Financial analysts predict the downward
trend in the DSM will continue in the immediate short term,
noting the market is currently trading on thinner volumes in
comparison to the first three months of 2005.

REASONS BEHIND FOREIGN INVESTOR CAUTION: NO PUBLIC
INFORMATION ON DSM REGULATIONS


11. Several Amcits, non-Qatari residents and foreign company
representatives have expressed numerous concerns about the
DSM. The most common concern mentioned by foreign investors
is there is no clear understanding of the laws regulating the
DSM. The GOQ has not yet published the implementing
regulations for the DSM as it pertains to foreign investment.
Without clear "rules of the game," many foreigners are
reluctant to invest in the DSM.

INAPPROPRIATE REGULATOR FOR DSM


12. A second concern raised by foreigners is uncertainty
about which GOQ agency is responsible for regulating the DSM.
Currently, the Ministry of Economy and Commerce (MOEC) acts
as the regulator of the DSM. This is a serious concern for
foreign investors because they believe the MOEC is not the
appropriate GOQ entity to regulate the stock market. In
2004, Econoff met with DSM surveillance and internal audit
manager who said the Qatar Central Bank would replace the
MOEC as DSM regulator (Ref B).

NO CUSTODY LAW


13. A big concern expressed by Amcits and Europeans is that
there is no custody law in Qatar. U.S. companies and
informed foreign investors said the United States, United
Kingdom and other European countries have custody laws which
separate the financial entities (or custodians) that receive
investors' capital from the stock brokers. Qatar does not
have a custody law which requires this separation and
therefore the stock brokers directly receive investment
capital. Many foreigners expressed serious reservations
about investing in a stock market with such risks.

LACK OF PUBLIC INFORMATION ABOUT COMPANIES TRADED ON DSM


14. Public information on DSM-listed companies is not readily
available in Qatar. While the GOQ requires government-owned
companies to publish their quarterly and annual results as
well as hold shareholders meetings, the lack of transparency
with regard to statistical data and laws remains a concern
for foreign investors. Some foreign investors have stated
that many well-positioned Qataris engage in information
sharing amongst themselves, which non-Qatari residents and
international companies argue is a form of insider trading.
A number of potential U.S. and European investors have said
the GOQ needs to establish clear regulations to require all
publicly traded companies to make their information more
accessible to help investors make good decisions.

LIMITS ON INVESTMENT


15. Some foreign investors expressed disappointment with the
25% limit on foreign investment and prohibition to access the
primary market or IPOs. They argue that if Qatar is serious
about attracting foreign investment, the GOQ must provide
better incentives and opportunities.
RISING U.S. INTEREST RATES


16. Given that the Qatari Riyal is pegged to the dollar, and
U.S. interest rates are rising, some investors see this as a
disincentive to invest in the DSM. Rising U.S. interests
rates have caused some foreign investors to put their money
into bank deposits, which is currently considered as a safer
use of their money than the risks of stock market investment.


ENHANCING INVESTOR EDUCATION AMONG QATARIS


17. Non-Qatari residents have expressed concerns about the
lack of understanding of the stock market and potential risks
to investors, particularly Qataris. They said many Qataris
who are new players in stock market investing are taking out
consumer loans, mortgaging their homes or quitting their
jobs. They noted that if the Emir wants to create wealth for
Qataris, the GOQ needs to do more to educate the people on
the fundamentals of the stock market investment. One U.S.
company explained that many Qataris have become victims to
the recent corrections of the DSM, losing huge amounts of
money from imprudent investments based on speculative
information from friends or rumors in the market. Some
foreigners have opined that unless the GOQ provides serious
investor education to its citizens, a significant number of
Qataris will be adversely affected which would be contrary to
the Emir's goal of wealth creation.


18. Comment: The opening of the DSM to foreign investment is
a positive step in implementing the Emir's vision of creating
wealth for Qatar and Qatari citizens while attracting foreign
investment. There are legitimate concerns that must be
addressed by the GOQ in order to attract greater foreign
investment in the DSM, in addition to diversifying and
enhancing Qatar's economic development and growth in a sound,
prudent manner for Qataris. Foreign investors realize the
DSM is a new entity and patience is required while Qataris
and non-Qataris learn about the laws, regulations and basic
rules for stock market investing. What remains to be seen is
if the GOQ will make the necessary changes and improvements
to the DSM for Qataris and non-Qataris alike to ensure full
implementation of the Emir's vision. End Summary.



UNTERMEYER