Qatar’s bourse has done all it needs to secure an upgrade to emerging market status from index compiler MSCI and the onus is now on individual companies to address the main foreign ownership limit issue, its top executive said.
Andre Went also told Reuters in an interview that the exchange, home to the best-performing regional benchmark last year, aims to launch trade in bonds, introduce market makers and increase companies listed on the bourse.
The biggest issue facing investors in the tiny Gulf Arab state, the world’s richest country per capita, is the low foreign ownership of Qatari companies, and this prompted a snub from MSCI during its review in December when it retained the country as frontier market.
“At this moment, there's not much the exchange needs to do. It’s up to individual companies to take that decision to move forward,” Went said.
“The current foreign ownership rule stipulates a minimum of 25 per cent, not a maximum. It serves as a floor, rather than a cap. Today, any company can apply for higher foreign ownership limits.”
Analysts estimate that a promotion to emerging market could result in inflows of up to $1.5 billion.
The bourse increased memberships from 7 to 10 or 11 and issued multiple licenses for international custodians to comply with MSCI regulations. Qatar had eight or nine companies that ticked the boxes for emerging market status as against the MSCI stipulation of at least three companies for qualification, according to Went.
The executive said it was difficult to predict whether an upgrade would happen at MSCI's next review in June, adding that the exchange continued to hold roadshows with companies and investors on the topic.
“MSCI wants to be comfortable that there is sufficient room available for foreign investors when it promotes a country from frontier to emerging,” he said.
Qatari retail investors comprise 65 to 70 percent of trading on the country’s exchange, but 20 to 25 percent of holdings, Went said.
“Non-Qatari investors make up only six to seven percent of the bourse’s market cap, so there is significant room still available.”
Went expects to see four new listings on the bourse a year on average over the next few years.
The massive domestic infrastructure building program Qatar has embarked on in the runup to the 2022 World Cup soccer tournament it is hosting would help markets, Went said.
Qatar has been preparing to deepen its debt market for many months, but has proceeded cautiously.
“Hopefully this year in one form or the other, we will have trading of government bonds of longer maturities, corporate bonds and project bonds,” Went said.
Activity in Qatari Treasury bills has been limited since they began trading on the Gulf state's bourse in late December, he said.
“Trading in T-bills has been quiet because T-bill trading is targeted at money market funds, not retail investors,” he said.
The exchange is in the first phase of a five-year plan launched in June 2009. The first phase involves the reform of the cash market, followed by the possibility of central counterparty and derivatives trading, and international business development in the final phase, he said.
It also plans to introduce market makers to increase liquidity, Went said.
“We would like to introduce liquidity providers, or market makers, who would be given a rebate in exchange for their commitment. We also want to introduce lending and borrowing, and direct market access.”
Qatar Exchange’s junior market will be launched only if there are five to 10 viable IPO candidates, he said.
“We are talking to interested parties and their advisors. Within five months we will have more clarity about those prospects.”
Went said he did not see much consolidation among regional exchanges in the next five years. He said there were multiple steps that need to be taken, such as harmonization of regulations, as a prerequisite for exchange consolidation.