Market maker: Qatar Exchange CEO Rashid Bin Ali Al Mansoori

Sitting in his spacious office in Doha’s West Bay, free from the entourage of assistants usually attached to CEOs of large, government-backed organisations, Rashid Bin Ali Al Mansoori appears relaxed and unhurried. He even responds, “How much time would you like?” when asked to confirm the length of our meeting.

Al Mansoori, who has served as CEO of Qatar Stock Exchange (QSE) since 2012, is frank about the issues facing a stock market that has historically struggled to generate large trading volumes.

In particular, he admits that, like other regional exchanges, QSE is grappling with liquidity pressures arising from the low oil price and flat global economy, and is adamant his organisation must “work harder” to encourage investment into Qatar’s capital markets.

“We know [liquidity] is an issue in all the stocks right now and we need to address it,” he tells Arabian Business. “It is mainly to do with the oil price and that is affecting the whole GCC market.

“However, we have worked hard to counteract this and overall I would say that, given the surrounding circumstances, QSE has been resilient to the impact of low oil prices and geopolitical tensions in the region.”

QSE had 45 companies listed on the exchange and a capitalisation of QR585.89bn ($160.89bn) as of January 22. Although Al Mansoori declines to provide figures relating to performance over the last six months because the 2016 annual report has yet to be published, he says QSE officials have drawn up a list of 12 initiatives to enhance liquidity in the market while challenging economic conditions persist.

Exchange Traded Funds (ETFs) are an important part of the investment landscape, according to Al Mansoori.

These are centred on improving investor relations at companies, broadening access to fund management and expanding the use of modern trading techniques, he says. One particular initiative expected to have a significant, positive impact on the bourse is already in place.

In October, QSE introduced margin trading, in which investors borrow money from a broker to purchase stocks, increasing the size of their stock purchase.

Regulated margin trading has been permitted in the UAE since 2012 and Oman since 2013, but other Gulf states have been cautious because of the perceived risk that some investors would struggle to repay their loans if the market turned against them.

“This initiative aims to boost liquidity in the market and provide new financing channels for investors, especially those who are willing to buy large amounts of stocks for their portfolios,” Al Mansoori said in October.

QSE’s total earnings dropped by 11 percent in the first half of 2016, impacted by an almost 50 percent fall in real estate sector earnings, it was reported last year. However, the figures were expected to improve in the second half of 2016 as the full impact of QSE’s inclusion on both the MSCI and S&P emerging markets indices (in 2014) and the FTSE Emerging Market Index (in 2015), took stronger effect.

Qatari stocks began trading on the emerging markets index in September 2016; the previous month they had climbed 2.2 percent on the back of FTSE’s announcement that it would relax the liquidity tests for Qatari shares, boosting inflows ahead of the upgrade.

QNB had a market capitalisation of $39.66bn as of January 26, 2017.

Al Mansoori acknowledges that inclusion on emerging market indices is “a good thing” for the exchange and he is not worried about any earnings dip in the 2016 results. “Of course, we need to work harder and better, but we are in good shape.

“Any stock market fluctuations at present are the result of external factors,” he adds. For example, in mid-December, the exchange ended six consecutive days of strong trading spurred by news of the OPEC deal to cut oil output, and its key index plummeted 39 points on December 14.

“Qatar has strong fundamentals — a good economy, large pipeline of infrastructure projects; everything is there.”

Certainly, Qatar is one of the best performing economies in the GCC at present, along with the UAE, analysts say. Growth is expected to slow from 3.7 percent in 2015 to between 2-3 percent in 2016-2017 — but that is better than Saudi Arabia’s anticipated growth of 0.8 percent, according to Capital Economics.

Still, while oil prices remain low, Qatar remains under pressure to diversify its economy and boost inward investment. “Diversification away from oil is extremely important for our economy, we need to not be dependent on it and so far [the country is] making progress,” Al Mansoori says. Qatar’s non-oil sector grew by 7.8 percent last year, economy minister Sheikh Ahmed Bin Jassim Al Thani told journalists in December.

Al Mansoori says QSE, whose companies represent a broad range of sectors, including financial services, telecoms, consumer, industrial and real estate, has a large role to play in driving this economic diversification. However, he admits it is failing to achieve the number of listings he would like to see, principally because a large number of family-owned businesses are unwilling to relinquish control of their firms.

“In the last three years we did not get as many initial public offerings [IPOs] as I wished. We had two — Gulf First Bank and Mesaieed Petrochemical Holding Co [a subsidiary of state-owned Qatar Petroleum]. We think this is because of the proliferation of family businesses in Qatar, he says.

Although many of these companies are coming up to their third generation of family ownership and are thinking about how to safeguard their assets, such as by tapping the stock market, we also see some nervousness.

“Many don’t realise the benefit of going to IPO. Maybe they are a little concerned about who’s in control of the company [once it goes public] — the potential loss of control — as well as disclosure requirements, regulatory issues and so on.

“More generally, the drop in oil prices and geopolitical stuff in the region over the past couple of years may have affected decisions about going public.”

Yet Al Mansoori says the value family businesses could bring to the stock exchange is substantial and QSE is working to encourage more of them to list. It has begun staging conferences aimed at family businesses to raise awareness of the benefits of going public, and help them overcome the accompanying legal and regulatory hurdles.

“We are moving in that direction,” he says, adding that QSE is looking at a “strong pipeline” of prospective IPOs in 2017 — two of which are family companies and two are exchange-traded funds (ETFs). The first, Investment Group Holding, launched its IPO shortly after Al Mansoori’s comments, on January 8.

QSE-listed Qatar Electricity and Water reported a 9 percent rise in Q3 profit.

However, persuading family businesses to go public is unlikely to be an easy task and conferences may not be enough. A report by Deloitte in June found that only 40 percent of new-generation family business leaders said they would consider external investors. The ‘big four’ services firm surveyed almost 100 representatives from family businesses in 19 countries across Europe, the Middle East and Africa (EMEA) and found that, while 80 percent said their leadership style would be different from the previous generation, the majority said maintaining business ownership and control within the family was a top priority.

Al Mansoori reveals QSE is working to establish a ‘private market’ of family-owned and other private companies in Qatar, aimed at creating a pipeline for the main market. This over-the-counter (OTC) system — which allows the trading of assets usually brokered by private securities dealers — will enable such businesses to become more visible to prospective investors and test the market.

“This market will not be a separate bit of the main exchange, it will be a private, OTC market with fewer regulatory requirements. Companies can start with this for a few years and it will prepare them for the main exchange,” Al Mansoori says.

It will also mean that, for the first time, there will be mandatory registration of all closed shareholding businesses in Qatar on a formal company registry. But legislative changes are required to do this, the CEO adds. “At the moment, private companies are not obliged to register with the central depository. So we are working with government on amendments to make it mandatory.

“I can’t give a date for when this work will be completed but we are making substantial progress and are hoping to launch the market before 2018.”

Qatar First Bank was the first private company to list on the QSE in six years and the first bank in nine years when it started trading on April 27, 2016.

Another initiative planned for this year is the launch of Sharia-compliant ETFs as part of QSE’s product diversification strategy. This is a “rapidly growing sector” that will provide access to emerging market debt and equities and be attractive not just for Qatari investors but Qatar-based expats, too, Al Mansoori says. “For those looking for ways to invest a little bit of their income but don’t know what stock to invest in… ETFs will be easy for them.”

QSE is also working with regulators to list real estate investment trusts (REITs), as real estate is considered a vital component of many investment portfolios in the region. Meanwhile, the Venture Market for SMEs launched in 2015 — another initiative intended to increase the size of the market and attract new investors. Al Mansoori says eight SMEs have submitted applications to date and three are ready to enter the market this year.

Over the longer term, QSE hopes to expand into complementary businesses, such as technology indices and market data, to diversify its revenue stream, but Al Mansoori is coy about these plans. “Many exchanges in the world are trying to diversify from being mainly trading businesses, so we are going in that direction too, looking at investing in exchange -related businesses, such as fintech [and other services]. But this is more like a three-year plan.”

Mesaieed Petrochemical Holding Co is wholly owned by Qatar Petroleum.

Qatar is not the only Gulf state developing its stock exchange to boost the economy. Kuwait, too, has made a series of changes to capital markets regulation as it prepares to privatise its stock exchange, while Abu Dhabi’s new financial free zone, Abu Dhabi Global Market, is reported to be establishing its own market for small businesses, similar to the London Stock Exchange’s AIM. Is Al Mansoori concerned by growing competition in the region? He says it is too early to consider privatising QSE — the exchange must first work towards gaining developed market status on the global indices — but, in any case, increased competition “will only make us better”.

He also says he has enormous confidence in Qatar’s government to introduce any further legislative reforms needed for the exchange to be able to compete on the global stage.

“We have strong support from the government; there is an open door at all times,” he says. “There is not one thing we have asked for that they have not done, be it raising foreign ownership limits or helping to finance SMEs. We have no issues [that would see us falling behind the competition].”

As director of the World Federation of Exchanges since 2014, Al Mansoori knows what he is talking about. And he certainly has the fast-track to Qatar’s government ministers, representing the Ministry of Finance’s Education and Health Fund, serving as a board member of various government entities and, in the past, establishing the IT department of the country’s sovereign wealth fund, the Qatar Investment Authority (QIA), with his degree in computer sciences.

The GCC is looking to the rest of the world to drive inward investment and is adopting international best standards in banking and finance to instil greater confidence in investors. Al Mansoori says a longer term goal is to attract more foreign firms to the exchange — at present, all the QSE-listed companies are Qatari. In this aim, and others, he is unlikely to rest on his laurels.

QSE is making steps to encourage family-owned businesses to list on the stock market.