Continuing our assessment of Qatar’s economic diversification in Gulf Times, the decision to encourage the development of Qatar’s equity market by establishing the Doha Securities Market (now Qatar Stock Exchange, or QSE) in 1995 can be seen as an integral part of the government’s strategy of strengthening the private sector and expanding domestic investment opportunities.
The operations of the QSE started in 1997 with the trading of eighteen companies and the market has witnessed a steady growth in its activities, with the number of listed companies, transactions and total value of shares traded increasing over time. The size of a stock market and its development is highly dependent on the introduction of new listings, and the QSE has more than doubled in size since 1997, increasing to 44 companies and the total market capitalisation has exploded from a mere QR6bn to around QR550bn.
Despite this growth, the QSE is still small in comparison with other emerging markets outside of the Gulf, and in absolute terms, yet this is understandable considering the small size of the overall market in Qatar. Capital is also concentrated in the hands of a few companies in some sectors. The QSE’s listed companies can be categorised into four main sectors of the economy: banking, insurance, industry and services. Historically, the performance of the banking, services and industry sectors were tied to the significant contribution of just few companies; QNB, Ooredoo and Industries Qatar, although this heavy market concentration has been addressed to some extent.
Boom and bust cycles are common to all stock markets, including those in in the GCC. The first was in Kuwait with the 1982 bust of Souk Al-Mannak due to the lack of effective regulation for over the counter trade. The 1991 Saudi Arabia bubble was a result of the repatriation of funds after the invasion of Kuwait and the 1998 Omani bubble came after the market was opened to foreign investors. Qatar went through its own boom during 2002-2004 where an increase in share prices occurred as a result of strong economic fundamentals, the growth of Qatar’s GDP and the increase of the price of oil.  However, the tremendous price rises seen in 2005 of all listed companies, with some nearly doubling in value, was not reflective of the economic fundamentals. Subsequently, the bubble burst and a major correction took place in 2006 that wiped out all the gains accumulated in the previous four-year hike.
Despite the limitations of size and capital concentrated in the hands of a few companies, the QSE has nonetheless been an important vehicle in attracting the investment of private sector wealth in the domestic economy, increasing the significance and contribution of Qatar’s financial system within its overall economy, and in supporting the government’s policy of diversification.
Not only has the QSE successfully attracted the interest of local capital, but the recent MSCI upgrade of Qatar from “frontier” to “emerging” market status and the increase of foreign ownership limits from 25% to 49% has raised the country’s profile as a foreign investment destination, attracting institutional investors from abroad and improving liquidity.
Finally, the QSE has been viewed as contributing to economic diversification by redistributing wealth from public state industries to the private sector and individuals, clearly seen during the marketing process of Mesaieed Petrochemical Company’s listing in 2014.