Qatar’s stocks have had more US$6 billion wiped off their value in the past three days as investors fret about the risk of the country losing the Fifa World Cup.
The benchmark Qatar Exchange Index finished 0.6 per cent lower yesterday at 13,142.69 – the third straight session of losses.
The sell-off follows allegations made by the UK's The Sunday Times that Mohamed bin Hammam, a former Fifa executive from Qatar, paid more than US$5 million to sway fellow officials before a vote that secured the country the right to host the 2022 World Cup. Qatar has denied any wrongdoing and has also said that Mr bin Hammam had no official or unofficial role in the bid process.
But the Fifa vice-president Jim Boyce is among those who have called for a fresh vote if an independent investigation finds Qatar broke the organisation’s rules on the bidding process.
Even before the latest claims emerged, some observers had questioned the sustainability of Qatar’s recent rally. The market is up 47 per cent over the past year, with a recent upgrade of some Qatari stocks to MSCI’s Emerging Market Index helping support buying.
“After its tremendous run in recent quarters, Qatar in US dollar terms is now the only Mena market back above pre-Arab Spring, and even pre-2005-06 bubble, levels. So the sensitivity to negative catalysts is potentially quite high,” said Hasnain Malik, the head of frontier market strategy at Exotix Partners, an investment firm, in Dubai.
EFG-Hermes, the bank, yesterday downgraded its assessment of Qatari stocks, citing “weak” recent earnings, and slowing credit growth, along with the risk of the World Cup not being staged in Qatar. Concern about the allegations have also taken their toll on Qatari bonds. The yield on Qatar’s 5.25 per cent bond due January 2020 rose the highest since March on Tuesday to reach to 2.41 per cent. Yesterday it was trading at 2.31.
Rashid Al Mansoori, the chief executive of the Qatar Exchange, told Bloomberg News yesterday that Qatar won the World Cup bid with “credibility” and corruption allegations were “noise.”
He also said the exchange is taking steps to “keep fuel in the market”.
The loss of hosting the competition would be cushioned by Qatar’s vast hydrocarbon wealth, which provides the main propeller of the economy and employment. Still, economists say it could still send shock waves through the wider economy. No World Cup would throw into uncertainty the outlook for $200bn of infrastructure projects the government was planning to spend over the next decade to prepare for the event and help kick-start new areas of growth like transport, tourism and property.
“If you take away the event there’s an increased likelihood that infrastructure projects may be scaled down or postponed,” said Khatija Haque, the head of Mena research at Emirates NBD.
“The impact on the real economy would be negative as non-oil growth would be lower than expected.”
Qatar’s economy expanded by 6.5 per cent last year, according to official estimates, supported by strong government spending.
The country has already been battling delays and cost overruns related to projects around the event. The government recently announced plans to scale down the number of football stadia being built to eight from 12. Doha’s new Hamad International Airport opened only last week after being originally scheduled to soft open in April last year. Qatar has also attracted criticism from human rights groups for the treatment of its blue-collar workers and last month announced reforms to its labour system.
But the loss of the World Cup would present different challenges. The likely subsequent fall in construction activity could also trigger a cyclical downturn in the property market, said Farouk Soussa, chief economist of the Middle East at Citi, the bank. Residential property prices rose 5 per cent between December and January, according to propertyfinder.qa, the property portal.
Still, the move could also be positive, said Mr Soussa.
“Insofar as much of the World Cup-related investment would, in our view, have represented a potential misallocation of capital, we believe redirecting this capital to more fruitful endeavours would have long-term benefits for the economy,” he said.
Brazil’s hosting of this year’s World Cup, due to start next week, will add only 0.2 percentage points to economic growth this year, Reuters reported last month, citing a poll of economists it carried out.
tarnold@thenational.ae
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