Identifier
Created
Classification
Origin
06DOHA1244
2006-08-20 14:14:00
UNCLASSIFIED
Embassy Doha
Cable title:  

DOHA SECURITIES MARKET: INDEX DROP, INVESTOR BASE, EXCHANGE

Tags:  ECON EPET EINV PGOV QA 
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sdohasntsc 08/27/2006 04:29:03 PM From DB/Inbox: AUG06 Archive

Cable 
Text: 
 
 
UNCLAS DOHA 01244

SIPDIS
CXDOHA:
 ACTION: P/E
 INFO: RAO DCM PAO AMB

DISSEMINATION: P/E /2
CHARGE: PROG

APPROVED: DCM:MRATNEY
DRAFTED: P/E:GSTRANDEMO, MSKH
CLEARED: P/E:RPYOTT

VZCZCDOI377
OO RUEHC RUEHZM RUCPDOC
DE RUEHDO #1244/01 2321414
ZNR UUUUU ZZH
O 201414Z AUG 06
FM AMEMBASSY DOHA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5411
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/USDOC WASHDC
UNCLAS SECTION 01 OF 02 DOHA 001244 

SIPDIS

STATE PLEASE PASS TO TREASURY
STATE PLEASE PASS TO USTR JASON BUNTIN
USDOC FOR 3131/USFCS/OIO/RD/ANESA RACHEL KREISSL

E.O. 12958: N/A
TAGS: ECON EPET EINV PGOV QA
SUBJECT: DOHA SECURITIES MARKET: INDEX DROP, INVESTOR BASE, EXCHANGE
UPGRADES


UNCLAS SECTION 01 OF 02 DOHA 001244

SIPDIS

STATE PLEASE PASS TO TREASURY
STATE PLEASE PASS TO USTR JASON BUNTIN
USDOC FOR 3131/USFCS/OIO/RD/ANESA RACHEL KREISSL

E.O. 12958: N/A
TAGS: ECON EPET EINV PGOV QA
SUBJECT: DOHA SECURITIES MARKET: INDEX DROP, INVESTOR BASE, EXCHANGE
UPGRADES



1. Summary. Doha Securities Market (DSM) officials and Doha-based
investment analysts believe that the main reason for high volatility
on the Doha Securities Market is that 90 percent of investors have
no financial education. Other reasons given for the drop include
high liquidity and a pack mentality in relation to other GCC stock
markets. Iranian investment is minimal. A number of technical
upgrades, such as real-time trading, are planned for the DSM. End
Summary.

--------------
Unsophisticated Investors
--------------


2. The DSM index was at 7,782 on July 5, 2006, down from a high
water mark of 13,000 in the fall of 2005. Emboffs have met with
officials from the DSM and other investment institutions to obtain
information about the reasons for its recent significant correction.
Several DSM officials and analysts commented that many Qatari
investors actually believed that the stock market was a fixed-income
investment, and did not carry any real element of risk.


3. DSM officials and analysts feel that inexperienced Qatari
investors need education and experience in investing, or they will
risk losing a significant portion of their wealth. One Doha
investment executive stated that when times were good, some Doha
shop owners shut down their businesses to become full-time traders,
and most lost significant sums in doing so.


4. DSM officials are concerned about the tremendous difference
between "book value" and "market value" of shares and give citizens
warnings that they can lose money on the DSM. However, these
officials believe that local investors do not listen to DSM warnings
about irrational purchasing of stocks and pay more attention to
rumors about a "hot stock."


5. In an effort to increase stability on the DSM, and lessen their
reliance on small, unsophisticated "retail" investors, DSM officials
are trying to encourage more institutional investors from Europe and
the U.S. to invest in Qatar. According to DSM officials, although
some western institutional investors are interested in Qatar, no big
move has been made yet by these investors.


--------------
DSM Affected by Gulf Region Markets
--------------


6. DSM officials and analysts stated that there is a strong
correlation between Gulf stock markets. When markets in Saudi Arabia
and United Arab Emirates fall, which they have in recent months, the
DSM also falls, but usually for no rational reason. One official
noted, "In Qatar, when the stock market goes up, everybody is happy,
when it goes down, everyone wants help from the DSM or the
government." Traders on the DSM are also sometimes influenced by a
trader who believes that a certain stock will go down; in the words
of DSM officials, "the sheep will follow."

--------------
DSM Correction Inevitable
--------------


7. Investment analysts believe that the recent correction on the DSM
was a must, but that there was an over-correction, and stock prices
have now gone down to an unreasonably low level without any rational
basis. Recently, the DSM index has remained fairly steady in the
mid- and upper-7,000 range.

--------------
International Investors
--------------


8. Most of the shares on the DSM are owned by Qatari citizens.
Foreign ownership of shares usually hovers around 8 percent, and
most owned by local expatriates. Israeli investors are allowed to
invest on the DSM, as no law prohibits investment by Israeli
citizens. The DSM has no data available on the number of Israelis,
if any, who invest money in the DSM.


9. Generally speaking, Iranians do not invest their money in the
DSM. Only Iranians resident in Qatar are said to invest on the DSM.

-------------- --------------
Real-Time Trading and Controls on Insider Trading
-------------- --------------


10. The DSM plans to use incorporate "real-time" trading into the
system to give investors more security on their trades, and also to
increase transparency in the system. There are a small number of
banks and brokerage houses in Qatar, so DSM officials believe that a
change to "real-time" trading will be fairly easy.


11. After the recent problems with insider trading, stricter
controls have been put in place to monitor the activities of board
members and other company officials of DSM listed companies. Some
DSM officials stated that "insider trading is killing the DSM."
Qatar does have laws to that prohibit insider trading, and the DSM
now has three financial investigators on staff to investigate
possible cases of insider trading. When a company official is
suspected of insider trading, a report will be sent to the
Prosecutor General's office for review and possible prosecution.
Last year, two high-profile cases of insider trading were in the
news in Doha, and one case resulted in the conviction of a
well-connected bank official.

--------------
The DSM STRUCTURE
--------------


12. Law No. 14 of 1995 set up the DSM, and the DSM opened for
business in 1997. The number of companies listed at the inauguration
of the DSM was 17. Currently 32 companies are listed on the
exchange.


13. There has been a great increase in volume of shares traded on
the DSM. Although the index has dropped considerably in the last
half of 2005 and the first half of 2006, trading volume on the DSM
remains the same.

--------------
COMMENT
--------------


14. Anxiety in Qatari society about the share price plunge appears
to have been less than Saudi Arabia and Kuwait experienced. There
were no calls for government intervention, although citizens
experienced some financial pain. We note that the small size of the
investor base leaves the DSM susceptible to sharp and irrational
fluctuations.
UNTERMEYER