Qatar stocks have been overlooked this year during a boom in some neighbouring Gulf markets, but new financial reforms and attractive valuations could pave the way for a rebound.

Concerns about the slow pace of Qatar’s massive infrastructure building programme has weighed on the Doha stock market this year.

Trading volumes have also dropped significantly since mid-June with the summer lull kicking in and initial earnings reports presenting a mixed picture for investors.

Qatar National Bank, the Gulf Arab state’s largest lender by market value, this month posted a 16.7% jump in second-quarter profits, matching forecasts. Qatar Islamic Bank missed estimates, reporting a drop in net profit.

Trading is likely to be muted as Ramadan, the Muslim month of fasting, has begun.
Qatar announced on Wednesday financial reforms and relaxed trading rules that could boost sentiment although they will take time to come into effect.

Valuations are also attractive.

The Qatar Exchange benchmark stock index is trading at a price to earnings multiple of 8.7 times, while Saudi Arabia’s is at 11.7 times and Dubai’s is at 9.8 times.

“The whole market is undervalued. There’s easily a 15 to 20% upside to fall in line with peers,” said Ahmed Shehada, head of trading at Qatar National Bank Financial Services.

“I expect the market to pick up into the second week of Ramadan. Investors, mostly Qatari corporate and retail, will be returning from summer (holidays) and getting back to business. A lot of people are sitting on cash.”

Qatar’s economy is forecast to grow by 6.3% in 2012, much slower than last year’s 14.1% expansion as the impact of decades of expansion in its gas output levels off, but economic growth is still set to outpace all its Gulf peers.

Financial reforms unveiled this week include lengthening the settlement time for local investors’ stock trades and expediting the creation of banks’ brokerage arms.
Approved local investors will have up to three days for payment settlement instead of having to make an upfront payment as at present.

This is expected to spur activity among local investors although it could take a few weeks for investors to benefit as the changes are implemented.

Planned infrastructure development projects as the country gears up for the FIFA World Cup in 2022 had been seen as a catalyst for investing in Qatar shares. But progress has been slow and the mega-projects are yet to be tendered.

“People are hoping some of the bigger projects will be announced by the year-end or early next year,” said Yassir Mckee, wealth manager at Al Rayan Financial Brokerage.
“People are hesitant but there are companies, subcontractors for the larger projects, who will get a piece of the pie.”

Petrochemicals and metals company Industries Qatar and United Development, which built the man-made Pearl Island project in Dubai, are seen as likely beneficiaries.

Technical index analysis also supports a short-term rally. Qatar’s index had closed at 8,329 points on Tuesday, a six-week high, though it dropped by 0.05% in the week. It has however rebounded after hitting a 10-month trough at 8,123.02 on June 28.

“It looks like the Qatar index has put in a bottom for now and should head higher in the short term,” said Bruce Powers, head of research and analysis at Trust Securities.
“The recent 8,123.02 low in the Qatar index completed a 50% retracement of the long-term trend. A short-term bullish reversal pattern subsequently formed and the index has since broken higher out of that pattern.”

Powers said the index could rally up to at least the 8,416.29 resistance area. “If the index surpasses that level then the next higher price level is around 8,513, followed by the 8,588 price area.”

Investors may also refocus on Qatar as early-year rallies in Dubai and Saudi Arabia fizzle out. Saudi stocks are now being hit by weak quarterly earnings from heavyweight petrochemical companies.

Saudi Basic Industries Corp (Sabic), the world’s biggest petrochemicals group by market value, reported a 35% drop in quarterly profits on Wednesday due to lower prices and production, missing analysts’ estimates.