Qatar takes steps to improve bourse liquidity amid foreign investor interest

Among the options being considered is a broad-based “stock split”, by reducing the par value of Qatari shares to 1 riyal from 10 riyals, market sources said.

Many of Qatar’s publicly listed companies have a foreign ownership limit of 25 per cent, although some have lifted these of late. Above, traders at Qatar's stock exchange. Mohammed Dabbous / Reuters

Qatar is seeking to improve liquidity on its bourse by reducing the par value of shares amid greater foreign investor interest after the Arabian Gulf state was declared an emerging market by MSCI.

Qatar Exchange’s “management will enter into consultation with market participants and issuers on improving liquidity in the market” next month, the bourse said in a statement posted on its website yesterday. The move comes after “changes in the market dynamics”, the bourse said after the country’s stocks were incorporated into MSCI’s Emerging Markets Index. Before June, Qatari stocks were represented on MSCI’s Frontier Markets Index.

Foreign investors, particularly tracker funds and ETFs, require ample liquidity when buying up a chunk of shares so as to not drive up the stock price significantly.

Among the options being considered is a broad-based “stock split”, by reducing the par value of Qatari shares to 1 riyal from 10 riyals - effectively a 10-for-1 stock split, market sources said. (In the UAE, stocks listed in Abu Dhabi and Dubai have a par value of Dh1.) The price is adjusted accordingly and the capital will be the same but investors are left holding more shares.

Despite an initial decline in the stock price post-split, the underlying value of the shares are effectively unchanged.

“There are two outcomes that occur from this process,” said Tariq Qaqish, the head of asset management at Al Mal Capital, a Dubai-based investment bank. “Psychologically, buying a share for 20 riyals is different from buying a share for 2 riyals. Secondly, they will think they have more holdings in the company.” It is hoped that the move will encourage retail trade as the process allows for more arbitrage profit in the stock price, Mr Qaqish said.

“If you want to make money, making a 10 per cent increase on 20 riyals is far more difficult than making the same return on a stock whose price is at 2 riyals. If you have the liquidity on the stock it is easy to make that profit with the retail-driven mentality.”

After the exchange holds meetings with brokers, bankers and investors, there will be a “review of the index methodology applied to the indices and publish in November any changes that will be effective from January 1, 2015,” the bourse said.

Last month, the emir issued a decree that allowed foreign investors to hold up to 49 per cent of Qatari firms. In addition, citizens of the GCC would be treated as Qatari citizens when it comes to shareholdings.

Many of Qatar’s publicly listed companies have a foreign ownership limit of 25 per cent, although some have lifted these of late, analysts said.

The QE Index has risen 34.9 per cent since January, trading at 14,006.46 points. “They will be doing whatever it takes to bring in liquidity,” said Samer Abuzahra, the head of institutional sales at Mubasher Financial Services, a regional brokerage whose headquarters is in Bahrain. “But then you have the political situation.”

Theo Zwanziger, a Fifa member, on Monday said he doubted that Qatar would host the 2022 World Cup. “The stocks are down almost 1 per cent today,” Mr Abuzahra said. “Negative news is too sensitive for investors.”

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