Markaz Proposes Investment Themes for Qatar


Kuwait Financial Centre SAK “Markaz”, one of the Middle East’s leading investment banking and asset management companies, presented nine investment themes for tapping the potential of Qatar economy in the 2nd Qatar Economic Forum held in Doha on May 21st .Markaz was the Gold sponsor for the forum.. Manaf Al-Hajeri, General Manager, presented the factors shaping Qatar’s economic boom. He detailed the diversity of hydrocarbon structure and the young demographic profile with very high affordability. Among other things, he stressed that the above-average economic growth, diversified hydrocarbon structure, above-average GDP per capita, & young demographic profile have created a positive impact on the economy. The impact has been in the areas of increased liquidity, accelerated investments and credit expansion resulting in a consumer driven economy and leading to a sustainable economic performance. In this context, nine important investment opportunities or themes for global and regional investors were presented. Opportunity 1: Banking Qatar is under banked as bank asset growth has not kept pace with economic growth. With a bank credit to GDP ratio of 47%, there is tremendous scope to increase banking activities. There is scope to rationalize bank credit towards more productive sectors as currently; personal loans form a large percentage of bank credit. It is feared that increasing bank exposure to this segment may result in asset price inflation. The role of private sector credit has been increasing at the cost of public sector credit with household consumption driving credit growth. Important growth drivers for Qatari banks would be the rapid population growth leading to growth in “bankable population”, increasing expatriate force, strong macro economic growth, etc. Within the banking segment, mortgage lending and consumer finance promises to be growth areas. Opportunity 2: Asset Management Asset management industry promises to be a high growth industry with the current penetration rate at extremely low levels. The share of equity funds to market capitalization for Qatar is at 0.06% while the GCC average is 2.54%, pointing to the rapid growth of the asset management sector. The high stock market volatility is a potential driver for this industry as sophisticated management tools would be required to manage this increased risk. With the strong macro economic story, Qatar has become one of the most attractive emerging markets for foreign investors. This rapid growth is expected to attract top rated international fund managers to Qatar and particularly to the Qatar Financial Centre, which itself is emerging to be a major catalyst. Within this environment, Islamic asset management products have a special place in terms of catering to the vast untapped demand. Opportunity 3: Infrastructure Infrastructure spending as a proportion of GDP is at 1.11% for GCC against 8.56% for BRIC’s. Infrastructure presents some unique opportunities in Qatar especially within the utilities and airport segment. The domestic annual demand growth for electricity consumption at 9% making it an attractive growth sector. Against the current demand of 2400 MW, the forecast demand for 2012 is estimated at 3200 MW. On the physical infrastructure front. the upcoming new international airport is estimated to cater to nearly 50 million passengers by 2009. Opportunity 4: Ancillary Industries Investment in Oil & Gas and other infrastructure projects will spur opportunities within the tertiary sectors like cement, aluminium, services, Information technology, etc. The Mesaieed Industry city for small and medium enterprises with a proposed area of 1 million sq metres is expected to spur this growth significantly. Opportunity 5: Real Estate (Commercial) The commercial real estate segment is witnessing tremendous growth due to various investment triggers. Notable among them are the above-average economic growth, government spending, rapid industrialization, increasing number of foreign companies, huge retail opportunity, emergence of Qatar as an industry hub, and business and social tourism in Qatar. Opportunity 6: Real Estate (Residential) Rapid industrialization leading to employment of expats and high affordability among locals are significant triggers for residential demand. The high level of inflation in Qatar has to be noticed in the context of what is contributing to this inflation. Rent has been the singular factor to this and this is primarily due to severe supply crunch. Rapid regulatory developments like permitting foreign ownership in selected areas will increase the supply. Opportunity 7: Wealth Management The economic boom witnessed in the last few years has increased the wealth level of residents, both locals and expatriates. Managing this wealth judiciously with long-term orientation would be crucial given the cyclicality of oil and gas prices. High net worth clients face some unique challenges including concentration risk due to home bias. The advisory function that focuses on asset allocation and product selection will be the key to this industry. The industry will also see a gradual shift to best practices due to foreign competition. Opportunity 8: Investment Banking Over $5 billion of investments are planned in the energy and public infrastructure projects in the near-term. Financial Institutions setting up shop in QFC may be keen to tap this potential. Competition and excess liquidity may force the pricing down with extended maturities and increasing deal complexity. Opportunity 9: Project Finance Qatar is the largest raiser of project finance in the region and this presents huge investment banking opportunities. More projects are coming up in the short-term i.e., within the next two years. In order to fully realize these opportunities, the market structure will be critical in terms of bridging gaps. ### About Markaz Kuwait Financial Centre SAK. 'Markaz', with total assets under management of over KD1.21 billion as of March 31, 2007, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997; and was recently awarded a BBB+ corporate rating by Capital Intelligence Ltd.