Satyendra Pathak
Doha
Qatar is gearing up for a FIFA World Cup equity market boom as the country’s stock exchange is all set to benefit hugely from the upcoming massive event.
With over $4bn of foreign inflows in the first ten months of this year alone, equity market experts say that Qatar’s stock market, like most of the previous FIFA World Cup host markets, has outperformed peers in the run-up to the mega event and is expected to continue along similar lines in the year after the tournament.
Historically, equity markets of FIFA World Cup host countries have, on average, outperformed peers. The average MSCI country stock market index of host nations of the previous seven FIFA World Cups, excluding outlier Brazil, grew by 21.8 percent in the year leading up to the World Cup and by 13.4 percent in the year after, compared to the MSCI World Index average growth of 4.3 percent and 9.5 percent respectively.
Brazil’s MSCI Index was an outlier and declined by 34 percent in the year after the final match in 2014. That drop was on account of domestic economic conditions, a political crisis, and high inflation prevalent at the time, analysts say.
While 2022 remains an extraordinary year with global stock markets bearing the brunt of central banks across the world hiking interest rates and turning off the supply of easy money - started during the pandemic - as they attempt to fight inflation, Qatar’s stock market has not been immune either.
The QSE Index, which measures the 20 largest and most liquid stocks in Qatar, appreciated as much as 24.7 percent from the start of 2022 to April 11, 2022, but then declined to almost flattish territory in late June and was again up by 12.1 percent year to date on September 05, 2022.
While that may not seem a lot, it still puts the QSE Index as a relative outperformer among most major regional and global markets in the first eight months of this year, as per the latest data available.
“While the country has been preparing for the World Cup for more than a decade, to focus on a short period of stock performance won’t be a fair reflection. If we look at the performance of Qatar’s stock market in the last five years, when the pace of World Cup preparations and development work really accelerated, Qatar’s stock market is up more than 50 percent. In the same period, the broad index of emerging market equity is down more than 20 percent, while the global equity indices are up around 15 to 18 percent. This shows that Qatar has outperformed very strongly in the last five years compared to other regional and global markets,” Akber Khan, senior director of asset management at Doha-based Al Rayan Investment, said.
‘Show off a developed Qatar’
Since 2010 when Qatar won the rights to host the world cup, the state has spent more than $300bn to upgrade its infrastructure including the Doha Metro, thousands of kilometres of local roads and highways, a new port, a new airport, and even a new city as well as boosting its oil and gas facilities.
“This has really pulled forward numerous medium-term development projects which would have been completed by the end of this decade but are already finished to show off a developed Qatar during the World Cup,” Khan added.
World Cup’s gains on the Qatar Stock Exchange (QSE) are expected to carry into the next year as well, primarily from construction, real estate, tourism, and retail spending that trickles down to the exchange-listed companies and the broader economy as a whole.
“Specifically, Qatar’s objective is to use the event as a springboard to showcase its offerings, and hopefully boost international tourist arrivals from 2.1 million in 2019 to 6 million per year by 2030,” said Saugata Sarkar, head of research at QNB Financial Services (QNBFS).
Qatari equities are already in an investment sweet spot benefiting from unique tailwinds. Adding to high oil and gas prices, significant net foreign investment flows given Qatar’s status as a safe haven, the upcoming World Cup, there’s also the expansion of its LNG facilities that the country has undertaken which will nearly double its gas output, catapulting it to the pole position.
“We believe that these drivers could be largely priced into the market but should provide the QSE Index with high-quality catalysts that help grow or stabilise the market despite the overall prevalent global risk-off backdrop,” Sarkar said.
“While we cannot rule out near-term volatility in the market, we continue to remain bullish longer-term on Qatari stocks given their defensive characteristics backed by their strong fundamentals. Net-net, we expect strong results from Qatari companies in 2022 largely driven by the FIFA World Cup,” he added.
The spoiler will be the war in Ukraine, he cautioned, which is keeping both Qatari and global indices volatile.
However, what works in Qatar’s favour as the world deals with the possibility of a recession is the fact that the country’s economic growth is tied to its gas production.
With new demand coming from Europe because of the Ukraine war and the fact that Qatar is the “lowest-cost” producer, “it is better prepared to absorb the negative impact a recession may have on energy prices,” said Mohsin Mujtaba, director, of product and development, QSE. That will also be attractive to foreign investors as they look to rebalance their portfolios in the face of a global slowdown, he added.
Mujtaba said, “Qatar Stock Exchange has by far outperformed global markets during the last two decades underpinned by economic growth on the back of LNG expansion, infrastructure investment, and hosting of global sporting events.”
Today, Qatar is home to the largest LNG producer in the world, the largest bank in the middle east, the best airline in the world, the best airport in the world, and host to the biggest sporting event in the world in 2022.
Historically, he said, “World cup host countries have provided returns of 35-45 percent (except for Brazil) during the three years window around the world cup event. Qatar is halfway through this period and follows the same trend providing around 22 percent return.”
The Qatari market has gained around 22 percent during the last three years, while the average daily traded value (ADTV) more than doubled during the same period.
In addition, he said, “During the first three quarters of 2022, foreign investment inflows at QSE have been more than the previous three years combined.”
“High oil and gas prices, significant net foreign investment flows given Qatar’s status as an investment safe-haven, the upcoming FIFA World Cup Qatar 2022 and game-changing LNG expansion provide meaningful drivers for the QSE in 2022,” Mujtaba said.
Going forward, he said, “Qatar’s huge LNG expansion plan will drive overall demand and growth for the investment case into the stock market. The LNG expansion will see Qatar’s overall LNG output increase by 64 percent to reach 126 million tons per annum (MTPA), from the current 77 MTPA. Qatar exported an estimated 80.2 million tons of LNG in 2021.”
Highlighting the ESG advantage of Qatar’s stock market, Mujtaba said, “LNG produces 40 percent less carbon dioxide (CO2) than coal and 30 percent less than oil, which makes it the cleanest of the fossil fuels providing QSE a natural ESG advantage compared to the region.”
“With excessive budget and trade surpluses, the government spending in Qatar is expected to continue and on the back of labour reforms already achieved provide a competitive environment to attract global talent in other economic sectors providing the impetus for non-hydrocarbon growth,” he said.
Long-term impact
According to regional equity experts, the projects initiated by the government of Qatar to host FIFA 2022 will have a long-term impact on listed companies across varioussectors.
MENA BDSwiss CEO Daniel Takieddine said in an email said while the hundreds of thousands of visitors coming for the short period of time during which the matches will be held will have an immediate impact, “more lasting consequences on the economy and financial markets in the country could be recorded. The widely followed event could draw attention from individuals and companies alike to Qatar as a tourism spot and as an investment destination boosting inflows ofcapital.”
Oliver Kent, managing director at Dubai-based ZK Sports & Entertainment, said he looks at the world cup as “just the start of a series of large-scale events that will draw visitors in large numbers, boosting the tourism sector over the longer term” citing a Formula 1 race and the 2023 Asia Cup that the country will host next year.
While clearly, the main beneficiaries will be the hospitality industry including the hotels, malls, shops, and retail, Akbar said, a number of small and mid-cap companies that won contracts over the last several years as suppliers to larger firms that the government has given out will equally benefit.
“This actually is unique to Qatar because previous world cups and probably the subsequent world cups have been in countries which are much larger where the impact of one or two million people visiting a country with hundreds of millions of population will be much diluted versus coming to a population of 3 million. The visitors that are coming will be in a very concentrated area so the impact will be all the greater compared to other host countries,” Akber said.
“It is not just Qatar that will benefit, it is also the regional countries that will benefit from the World Cup. Listed companies across Gulf countries in a large number of sectors including transport, and hospitality in particular will benefit. So, the regional impact of the world cup will also be very, very significant,” he said.
