QATAR STEPS UP MONITORING BANK LIQUIDITY AS DOHA

C O N F I D E N T I A L SECTION 01 OF 02 DOHA 000710

SIPDIS

E.O. 12958: DECL: 10/08/2018
TAGS: EFIN EINV ECON PREL QA
SUBJECT: QATAR STEPS UP MONITORING BANK LIQUIDITY AS DOHA
MARKET PLUMMETS

REF: DOHA 705

Classified By: Ambassador Joseph E. LeBaron, for reasons 1.4 (b,d).

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(C) KEY POINTS
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-- The Qatar Financial Center (QFC) confirmed to us October 8
that the Central Bank was "being more vigilant" in monitoring
banks' liquidity. Employees at the QFC and three bankers
have told us in recent days that Qatar does not have a
liquidity problem. The Minister of Finance, as reported
reftel, maintains this position as well.

-- Qatar suffered its biggest stock market drop in nearly
nine years yesterday, October 8th, plummeting 8.75%.

-- Despite rumors that the Government, presumably in the
person of the Prime Minister, intervened to buy shares to
shore up stocks, there is no confirmation of this.

-- A respected local banker attributes the drop in GCC stock
market prices to Western institutional investors' selling of
highly appreciated GCC stocks to, for example, raise cash to
meet margin calls or to fund hedge fund redemptions
elsewhere.


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(C) COMMENT
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-- Post was unsuccessful in reaching contacts at the Qatar
Investment Authority (QIA) for additional comment. We
understand that QIA and Qatar Financial Center officials are
traveling, many to IMF meetings in Washington.

-- Even if we had been successful, there is probably not much
that QIA would have divulged to us. If there is one issue
about which both governments and individuals are uniformly
secretive, it is their finances.

-- Meanwhile, Deputy Treasury Secretary Kimmitt is expected
to lead a delegation to Qatar October 28-29, to include
Undersecretary of State for Economic, Energy and Agricultural
Affairs Jeffery.

-- The Qataris will be eager to hear directly from senior
U.S. officials about efforts to shore up confidence in global
markets. Like elsewhere, investment fear is in the air, and
Qataris here are deep breathing it.

End Key Points and Comment.


1. (C) Following Minister of Finance Kamal's September 30
comments to the Ambassador that Qatari banks were in good
shape and did not face a liquidity crisis, officials at the
QFC have reported that the Central Bank nevertheless is
"being more vigilant" in monitoring banks' liquidity.
Employees of three private banks hold the same view.
Following a steep drop in stocks October 8, rumors began
circulating in Doha that "the government" (more specifically
the Prime Minister, whose personal wealth is considerable)
had intervened in the course of the day to bolster stock
prices on the Doha exchange. Banking contacts told us,
however, they have no information to
substantiate these rumors.


2. (U) Qatar's main stock market index, the DSM 20, suffered
on October 8 its biggest drop since February 2000, plummeting
by 8.75 percent. More than 27 billion Qatari Riyals (7.42
billion USD) of notional wealth was wiped away in the
process, leaving many Qataris -- accustomed to the idea of
rising national wealth as far as the eye can see -- stunned.
Although Qatari institutional investors made a concerted
effort to buy shares that were sold by foreign investors, the
losses were not stemmed. More than 23 percent of Qatari
institutions were net purchasers of stock during the day --
compared with 8.88 percent the previous day.


3. (SBU) Srikaram Venkataramanan, the Assistant Manager for
Strategic Planning and Monitoring at Doha Bank, told P/E
Chief October 9 that the fundamentals of Qatar's economy are
sound, but the psychological effects of the global financial
crisis are having a pronounced impact on Qataris, who are
relatively new international investors with an investment
history of only five to ten years. Since Qataris have never
experienced anything close to this phenomenon before, "they

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are scared." Their initial reaction, according to
Venkataramanan, is to hold back on investing their money
until overall global confidence rebounds. That said, they
need to put their money somewhere, and this banker predicts
that we will see an upward trend toward infrastructure
investments in Qatar and other Gulf Cooperation Council (GCC)
states as a result.


4. (SBU) Why invest in the region? Venkataramanan returns to
his premise that the fundamentals of the region are basically
sound, and the likelihood of earning long-term profits from
investments in Qatar and its neighbors is more certain than
investing in the West. Since the need for building
infrastructure capacity in the GCC is great, and added
infrastructure will promote economic growth over the longer
term, these investments make sense. Another reason Qataris
are now risk averse when it comes to investing in Europe and
North America, says Venkataramanan, is the suffering that
Qatari investors -- including the national Sovereign Wealth
Fund (SWF),the Qatar Investment Authority (QIA) -- have
endured in recent weeks. Many SWFs and other investors
helped rescue financial institutions and have since seen the
value of those investments drop substantially. While he
could not speak directly to QIA's current strategy,
Venkataramanan believed QIA and other major institutional
Qatari investors aim to "bring their money home," where
confidence in long-term returns is greater.


5. (SBU) Venkataramanan concluded by underscoring again that
there is "no actual problem in the region" and emphasizing
that the stock market fall in Qatar and elsewhere in the GCC
merely reflects the cascading effect (from West to East) of
the current global financial crisis. Ironically, he said,
the regional stock markets plunged October 8 because the
share prices on those exchanges had risen markedly in recent
years, making them ripe for profit taking. What happened
October 8, explained Venkataramanan, was that Western
institutional investors sold off GCC stocks to finance
shortfalls in operations elsewhere. For example,
Venkataramanan said that Citibank needed cash urgently to
cover commitments in India, so it sold stock in Qatar at a
nice profit to acquire the necessary cash. It was the
short-term needs of Western institutional investors that led
to the drop in stock prices, he asserted. This is why the
Qatari investors who bought shares October 8 will profit
handsomely from their purchases over the long-run. The
fundamentals of the market in Qatar are sound, and Western
institutions hungry for cash have to sell assets for now
where the net cash profit is greatest. In Venkataramanan's
view, Qatar and the GCC states are where the money is.

LeBaron