Posted on October 19, 2012

Industries Qatar's decision last month to increase the amount of shares foreigners can buy in it is raising speculation that more Doha-listed companies will follow the lead of the petrochemicals maker.

The company raised its foreign ownership limit in September to 12.25 per cent from 7.5 per cent, it said in a statement on Sunday, as it released its earnings results. The shares rallied strongly the following day and were the most traded on the Doha stock market.

"This will lead to more companies opening up," says Tariq Qaqish, deputy head of asset management at Al Mal Capital in Dubai. "I'm sure this had the blessing of the government."

Imposing limits on foreign ownership of shares has been the main reason why Qatar has failed to enter the MSCI emerging market index on several occasions, most recently in June. Membership of the index would place Qatar on the radar for more international funds and improve Doha's branding as a regional financial centre.

Across the Gulf, listed companies only offer a fraction of their business for international investors to trade. The rules vary from the most restrictive, Saudi Arabia, where foreigners cannot buy stocks directly, to the United Arab Emirates where foreigners can buy up to 49 per cent of companies.

Most Qatari companies limit foreign ownership to a quarter of the company, though they can boost that if shareholders agree. Qatar Petroleum, the state-owned energy company, increased the free float of shares by moving 104.5m of Qatar Industries' shares to the General Retirement and Social Insurance Authority.

Qatar Airways Baku

However, while there remains some interest from foreign investors, in particular in names such as Qatar National Bank and Qatar Electricity and Water, there is less excitement towards Qatar compared with a year ago, traders say. This year, the market has lagged behind its Gulf peers, largely on account of foreign selling, they say.

"The interest is less due to some improvements on the regional political scene and the fact that the World Cup has not yet started to impact the economy," says Sebastien Henin, portfolio manager at The National Investor in Abu Dhabi.

Qatar has repeatedly failed to get a promotion to emerging markets from frontier markets status, as a result of what MSCI deems as very low foreign ownership levels. The next reclassification decision is due to be announced in November. If more companies follow Industries Qatar's lead, "it will remove the hurdle for the MSCI upgrade to emerging markets. This is the only excuse now for MSCI," says Mr Qaqish.

Though the short-term story may not be so compelling, some investors are keen to invest in Qatar over the longer term, to take advantage of future growth plans tied to the vast spending around the 2022 World Cup.

"Qatar's growth outlook is set to materially brighten over the next couple of years likely forcing investors to revisit the investment case," says Akber Khan, director of asset management at Al Rayan Investment in Doha.

But opening up the market may not be so simple. As Mr Henin puts it: "The stock exchange is considered as a way to redistribute wealth. The perception of having foreigners too present could be sensitive."

by Camilla Hall