TIDMQIF
RNS Number : 6196C
Qatar Investment Fund PLC
19 April 2017
19 April 2017
Qatar Investment Fund plc ("QIF" or the "Company")
Q1 2017 Investment Report
Qatar Investment Fund plc (LSE: QIF), today issues its Q1 2017
Investment Report for the period 1 January 2017 to 31 March 2017, a
pdf copy of which can be obtained from QIF's website at:
www.qatarinvestmentfund.com.
QIF was established to capitalize on the investment
opportunities in Qatar and the Gulf Cooperation Council ("GCC")
region, arising from the economic growth being experienced in the
area. The Company invests in quoted Qatari equities listed on the
Qatar Exchange ("QE") in addition to companies soon to be listed,
with a possible allocation of up to 15% in other listed companies
elsewhere in the GCC region. The Investment Adviser invests using a
top-down screening process combined with fundamental industry and
company analysis.
QIF Quarterly Report - Q1 2017
3 months ended 31 March 2017
Highlights
Qatar Investment Fund
Ø Qatar Investment Fund Plc's ("QIF") net asset value per share
("NAV") gained 1.4% vs Qatar Exchange Index's ("QE") fall of 0.4%
for the quarter.
Qatar
Ø Qatar's GDP grew 1.7% in Q4 2016 vs Q4 2015 (non-hydrocarbon
growth 5.9%).
Ø Credit growth: 3.4% to end February (public sector growth
8.0%).
Ø Population reached an all-time high of 2.67 million.
Ø Qatar Central Bank increased policy lending and deposit rates
0.25% in March 2017, in line with the US Federal Reserve's rate
increase.
Ø S&P affirmed Qatar's long term rating at 'AA'.
Ø FTSE Russell completed its second phase of Qatar's upgrade to
secondary emerging market status.
Ø Qatar lifted its self-imposed moratorium on the southern
section of the North Field gas field in an attempt to increase its
LNG market share.
QIF performance
Please refer to the IMS on the Company's website
www.qatarinvestmentfund.com/publications/quarterly-reports/ for a
chart depicting the NAV per share compared to the QIF share
price.
On 31 March 2017, the QIF share price was trading at a 17.7%
discount to NAV.
Historic performance
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1
5M 2017
----------------- ------ ------- ------ ------ ------ ------ ------ ------ ------- ------ ------
QIF NAV* 13.9% -36.4% 10.4% 29.9% 1.3% -4.7% 24.2% 20.6% -14.6% -2.6% 1.4%
----------------- ------ ------- ------ ------ ------ ------ ------ ------ ------- ------ ------
QE Index 27.0% -28.8% 1.1% 24.8% 1.1% -4.8% 24.2% 18.4% -15.1% 0.1% -0.4%
----------------- ------ ------- ------ ------ ------ ------ ------ ------ ------- ------ ------
QIF Share Price 15.5% -67.5% 97.3% 23.0% -2.3% 2.4% 26.4% 17.4% -17.0% -4.5% -2.6%
----------------- ------ ------- ------ ------ ------ ------ ------ ------ ------- ------ ------
Source: Bloomberg, QIC, Note: *Net of dividends paid
Portfolio Structure
Top 10 Holdings
Company Name Sector % share of NAV
------------------------------ ---------------------------- ---------------
Qatar National Bank Banks & Financial Services 15.6%
------------------------------ ---------------------------- ---------------
Masraf Al Rayan Banks & Financial Services 9.9%
------------------------------ ---------------------------- ---------------
Industries Qatar Industrials 9.7%
------------------------------ ---------------------------- ---------------
Qatar Electricity & Water Co Industrials 5.9%
------------------------------ ---------------------------- ---------------
Barwa Real Estate Real Estate 5.5%
------------------------------ ---------------------------- ---------------
Ooredoo Telecoms 5.3%
------------------------------ ---------------------------- ---------------
Qatar Gas Transport Transportation 5.2%
------------------------------ ---------------------------- ---------------
Qatar Islamic Bank Banks & Financial Services 5.1%
------------------------------ ---------------------------- ---------------
Gulf International Services Industrials 4.5%
------------------------------ ---------------------------- ---------------
Commercial Bank of Qatar Banks & Financial Services 4.4%
------------------------------ ---------------------------- ---------------
QIF's top 10 holdings remained unchanged for the quarter;
however, the Investment Adviser reduced the portfolio weighting of
top 10 holdings to 71.0% from 80.0% in Q4 2016 predominantly by
reducing its holdings in Qatar National Bank and Qatar Islamic
Bank. Exposure to Industries Qatar and Qatar Electricity and Water
Company has also been reduced while holdings in Masraf Al Rayan,
Barwa Real Estate, Commercial Bank of Qatar and Gulf International
Services were increased as valuations became attractive.
Country Allocation
As at 31 March 2017, QIF had 24 holdings: 18 in Qatar and 6 in
UAE (Q4 2016: 23 holdings: 16 in Qatar and 7 in UAE). The
Investment Adviser increased exposure to UAE to 7.9% from 6.8%.
Cash was at 7.8% (Q4 2016: 1.1%).
QIF added four holdings during Q1 2017: Doha Bank, National
Leasing, Vodafone Qatar and Al-Dar Properties. QIF sold its entire
holding in Qatar International Islamic Bank, Air Arabia and First
Gulf Bank.
Sector Allocation
Please refer to the IMS on the Company's website
www.qatarinvestmentfund.com/publications/quarterly-reports/ for a
chart depicting the overall portfolio allocation by sector as at 31
March 2017.
The banking sector (including financial services) remains a
priority sector for QIF at 38.8% of NAV, however, its weighting is
slightly lower compared to the QE index weighting of 39.8%. Qatar
National Bank remains QIF's largest holding (15.6% of QIF). For the
period December 2016 to February 2017, credit in Qatar continued to
grow strongly (up 3.4%), mainly driven by the public sector (up
8.0%). The Investment Adviser believes that loan growth will remain
strong, driven by the government's infrastructure development
plans, rising population and growth in the non-hydrocarbon
sector.
Industrials remain QIF's second largest exposure at 23.7% of NAV
(Q4 2016: 25.8%) led by Industries Qatar (9.7% of NAV). The holding
in Gulf International Services increased to 4.5% from 3.8% in the
quarter, while exposure to Qatar Electricity and Water decreased to
5.9% from 7.9%.
The Real Estate sector is 11.7% of NAV. The exposure to the
Insurance sector rose to 3.0% from 1.8%, while the holding in the
transportation sector reduced to 6.8% from 10.1%.
Exposure to the Telecom and Services, and Consumer Goods sectors
reduced marginally to 5.7% (Q4 2016: 5.9%) and 2.6% (Q4 2016:
2.9%), respectively.
Regional market overview
In Q1, all Gulf Cooperation Council (GCC) markets fell, except
Kuwait and Bahrain. The decline was also reflected in the Bloomberg
GCC200 index, which declined by 1.1% during the quarter. Lower oil
prices added to the market pressure as crude prices fell 5.7%
during the quarter on the back of rising production in the US.
However, Kuwait and Bahrain were up 22.3% and 11.1%,
respectively.
In March 2017, the Qatari market dropped 2.9%, reversing the
gains made in the previous two months, finishing the quarter down
0.4%. The Consumer sector gained the most, up 8.9%, followed by the
Real Estate and the Banking sectors, up 6.3% and 3.4%,
respectively. The telecom sector declined 8.6%.
Qatar 2017 Outlook:
The long-term growth prospects of the Qatari economy remain
positive, as the Qatari government is committed to continuing its
infrastructure investment spending program ahead of the 2022 FIFA
World Cup and in line with the Qatar National Vision 2030. Qatar's
efforts of diversification from hydrocarbon dependence are already
visible as the share of non-hydrocarbon GDP has grown from 41.0% in
2011 to 69.6% at the end of 2016.
Please refer to the IMS on the Company's website
www.qatarinvestmentfund.com/publications/quarterly-reports/ for a
chart depicting the Qatar's hydrocarbon v/s non-hydrocarbon share
in nominal GDP.
Qatar's 2017 budget is in line with the Qatari vision to achieve
a self-sustaining economy as laid down in the Qatar National Vision
2030. The budget is committed to reducing Qatar's planned deficit
by 38.9%, from QAR 46.5 billion in 2016 to QAR 28.4 billion in
2017. The deficit is expected to decline due to a pickup in
government revenues and continued rationalisation of current
expenditure.
The budget is based on an average oil price of USD 45 per barrel
with revenues estimated at USD 46.7 billion (QAR 170.1 billion), up
9.0% from the previous year. The expenditure is estimated at USD
54.5 billion (QAR 198.5 billion), 2% lower from 2016, mainly driven
by a 6.6% reduction in current expenditure while maintaining its
capital spending which is expected to increase by 3.2%. In the last
fifteen years, 2016 was the first year when Qatar experienced a
budget deficit.
Complementary measures including Qatar's plan to levy excise
taxes on tobacco and sugary drinks from 2017 will generate
additional revenue for the government.
S&P has forecast Qatar's nominal GDP in USD terms to grow by
almost 8% in 2017 to USD168 billion and reach USD200 billion in
2020. The current account deficit this year will fall to 2.1% of
GDP from 4.1% in 2016. S&P forecasts the deficit will fall
again in 2018 and a surplus will be recorded in 2019 and 2020. The
positive trends mainly reflect the impact of higher expected oil
prices.
Qatar's credit growth was 12.1% in 2016, driven by strong public
sector growth of 25.7%. Between December 2016 and February 2017
credit growth remained healthy, up 3.4%, driven by strong public
sector growth (+8.0%). Moreover, deposit growth was also strong (up
6.8% year to date) indicating government deposits are back on track
and reducing pressure on funding and liquidity in the banking
system.
Please refer to the IMS on the Company's website
www.qatarinvestmentfund.com/publications/quarterly-reports/ for a
chart depicting the Qatar's public vs private sector credit
growth.
According to Moody's, stabilising oil prices, large
international sovereign debt issuances and lower credit growth will
improve funding conditions for banks in the GCC in FY17.
Furthermore, the Qatari banks will benefit the most from the
expected easing of liquidity, as the country is less affected by
low oil prices.
Compared to 2016, the Investment Adviser expects a positive
trend in oil prices in 2017-18, which should support a recovery in
growth with the non-hydrocarbon sector as the main driver.
Moreover, fiscal deficits are expected to be moderate and the
recovery is likely, with real GDP to grow at a likely pace of 3.8%
in 2017 and 4.1% in 2018.
Qatari banks lead growth in GCC Banking Sector revenue in
2016
Qatari banks reported the highest revenue growth in 2016, at
24.4%, compared to peers in the GCC region, driven by the
integration of acquisitions, according to the Boston Consulting
Group. However, due to an increase in loan-loss provisions in
Qatar, profits of these banks declined slightly by 1.8%.
In contrast, UAE banks collectively had no revenue growth and
reported a decline in profits by 4.5%, after an increase in
provisions by 12.8%.
Qatar: corporate profits declined 6.4% in FY16
The combined net profit of Qatari listed companies was down
12.3% in FY16 compared to FY15. This sharp drop can be mainly
attributed to a one-off gain of USD 742.2 million (QAR 2.7 billion)
reported during Q1 2015 by Barwa Real Estate. Excluding this
one-off gain, FY16 net profits would have been lower by 6.4%.
Sector profitability (net profit/loss in QAR 000's)
Sector FY15 FY16 % change
-------------------------------- ----------- ----------- ---------
Banks & Financial Institutions 20,064,647 19,753,428 -1.6%
-------------------------------- ----------- ----------- ---------
Services &Consumer Goods 2,282,308 2,059,949 -9.7%
-------------------------------- ----------- ----------- ---------
Industry 8,742,053 6,504,602 -25.6%
-------------------------------- ----------- ----------- ---------
Insurance 2,205,688 1,402,401 -36.4%
-------------------------------- ----------- ----------- ---------
Real Estate 5,520,512 4,115,587 -25.4%
-------------------------------- ----------- ----------- ---------
Telecoms* 2,118,278 2,192,554 3.5%
-------------------------------- ----------- ----------- ---------
Transportation 2,261,992 1,871,306 -17.3%
-------------------------------- ----------- ----------- ---------
Total 43,195,478 37,899,827 -12.3%
-------------------------------- ----------- ----------- ---------
Source: Qatar Exchange;* Excluding Vodafone Qatar because of
31(st) March year end
Profits in the banking and financial services sector were down
1.6% in FY16 compared with FY15. This fall was predominantly led by
a 2.2% decline in net income of Qatari listed banks due to a sharp
rise in loan loss provisions. Lending in Qatar was up 12.1% in
FY16, led primarily by the public sector (up 25.7%). Qatar National
Bank, reported a profit growth of 9.8% during the period. Qatar
Islamic Bank, Masraf Al Rayan and Qatar International Islamic Bank
reported net profit growth of 10.3%, 0.1% and 0.1%, respectively.
On the other hand, Commercial Bank of Qatar and Doha Bank reported
a sharp fall in net profit, down 64.3% and 22.1%, respectively,
mainly due to a substantial rise in loan loss provisions.
Profits in the services & consumer goods sector dropped 9.7%
in FY16 compared to the same period last year, as companies in the
sector including Medicare Group, Qatar Cinema and Qatar Fuel
reported reduced profits while Al Meera profits were up 22.9%.
Profits in the industrials sector declined 25.6% in FY16
compared to the same period in FY15. This was primarily due to a
33.9% fall in net profit of Industries Qatar and a 91.6% decline in
net profit of Gulf International Services, caused by the fall in
petrochemical prices and decrease in rig rates. However, the net
profit of Qatar Electricity and Water rose 2.8%.
In FY16, the net profit of the insurance sector declined 36.4%
compared to FY15, as all the companies in the sector reported
reduced profits.
Real estate profits declined sharply, mainly driven by the
significant drop in net profit reported by Barwa Real Estate (down
47.5%). Barwa Real Estate had reported a one-off profit on sale of
properties of USD 742.2 million (QAR 2.7 billion) in Q1 2015. As a
result, the company reported a lower profit in Q1 2016 and hence
for FY16. Excluding this one-off gain, real estate sector profits
would have been up 46.0% in FY16.
The Qatari telecom sector comprises Vodafone Qatar and Ooredoo.
Vodafone Qatar is excluded from this profit comparison, as its
fiscal year ends on 31(st) March. Ooredoo (formerly Qatar Telecom),
reported a 3.5% rise in profit in FY16.
In the transportation sector, profits declined 17.3%, as Qatar
Navigation Company and Qatar Gas Transport Company reported net
profit drops of 35.0% and 2.9%, respectively in FY16. However, Gulf
Warehousing Company reported an 11.1% growth in FY16 net
profit.
Recent Developments
Qatar lifts North Field moratorium
Qatar lifted its 12-year old self-imposed ban on new
developments in the southern section of the North Field gas field
in an attempt to increase its market share, which has been falling
as other supplying nations have built new capacity. North Field,
which Qatar shares with Iran, is the world's largest dry gas field
and accounts for nearly all of Qatar's gas production and around 60
% of its export revenue.
The development in the southern section of the North Field is
expected to have a capacity of 2 billion cubic feet per day, or
400,000 barrels of oil equivalent, and increase production of the
North Field by about 10%, when production commences in 5-7 years.
This development could benefit Qatar in maintaining a competitive
edge after 2020, when the global LNG market is expected to tighten
as current low LNG prices are anticipated to deter investment in
high cost competing projects, leading to tighter supply and better
prices. Qatar's low-cost base gives it a competitive advantage over
other established LNG suppliers.
Qatar Stock Exchange (QSE) expected to have four company
listings and two Exchange Traded Funds (ETF's) listing in 2017
The QSE expects to see four company listings and two ETF's
listing in 2017. The ETF's, sponsored by Masraf Al Rayan and Doha
Bank respectively, are expected to launch by the end of the year.
The QSE is equipped with the necessary technology and systems in
place to accept the ETF's.
The Masraf Al Rayan ETF, which will track 17-stock Al Rayan
Islamic index, will be managed by Al Rayan Investment Company, a
subsidiary of Masraf Al Rayan; while the Doha Bank ETF, which will
track the 20-stock Qatar Index, will have Amwal as fund manager and
Group Securities as liquidity provider.
OPEC leans towards extending oil-production cut
OPEC oil producers are in favour of extending the oil-production
cut beyond June 2017 to balance the market, although Russia and
other non-members need to remain part of the initiative. OPEC
sources told Reuters in February-17 that the group could extend the
supply reduction pact, or even apply deeper cuts from July-17, if
inventories fail to drop to a targeted level.
FTSE Russell has doubled the weight of 20 QSE firms from 20th
March 2017
FTSE Russell (part of London Stock Exchange) has doubled the
investible weight of 20 of the 22 selected QSE-listed companies,
effective from 20th March. This was the second tranche of the
FTSE's Qatar emerging market upgrade as announced in FY16. In
September 2016, FTSE Russell confirmed the inclusion of all the
earlier indicated 22 stocks in its secondary emerging market index.
Analysts estimated the increased weightings could attract over USD
300m of fresh, passive funds to Qatar.
Qatar Central Bank raised its overnight lending rate by 25 bps
to 5.0%
The Qatar Central Bank raised its overnight lending rate by 25
basis points (bps) to 5.0% after the Fed tightened policy by a
similar margin. The central bank also increased its overnight
deposit rate by 25 bps to 1.25%. However, the central bank reduced
banks' reserve requirement by 25 bps to 4.5%.
Medicare Group to replace Mazaya Qatar in QSE's key index
revision from 1st April-17
Medicare Group will replace Mazaya Qatar in the Qatar Stock
Exchange's main barometer 20 stocks, effective from 1(st) April,
2017. In its semi-annual review of the indices, the bourse also
announced that Qatar First Bank (QFB) will figure in both the Al
Rayan Islamic Index and the All Share Index.
S&P affirms Qatar ratings; currency peg seen safe
Global credit rating agency Standard & Poor's (S&P) has
affirmed Qatar's long term rating at 'AA' and short term at 'A- 1+'
and expects its currency peg to be maintained with the US dollar.
However, the outlook has been revised to "negative" from "stable"
on a weakening external liquidity position owing to the rapid
growth of banks' foreign liabilities and public sector debt, which
stretched Qatar's external funding needs.
Government spending boosts private sector growth in Qatar
The government is spending about USD 500 million a week on
capital projects focused on preparations to host the 2022 World
Cup.
A total of 90% of World Cup projects have been awarded and are
expected to be executed on time, and two thirds of these projects
will be delivered in the next 24 months. The Finance Minister
stated that around 65% of road projects in Qatar will be completed
in 2017 and 2018, and more than 50% of railway projects have been
completed.
The result of this rate of spending is that Qatar's economy is
predicted to grow up to 3.5% in 2017.
Qatar tourism growth to generate USD 17.8 billion by 2030
Qatar tourism growth is anticipated to generate USD 17.8 billion
in visitor spending by 2030, according to Arabian Travel Market, as
the country works towards its 2030 target of 10 million visitors a
year. Qatar plan to generate 5.2% of its GDP from tourism, creating
nearly 98,000 jobs and managing an inventory of 63,000 hotel
rooms.
Qatar Tourism Authority (QTA) predicts the tourism sector's
total economic contribution will reach QAR 81.2 billion (7.3% of
GDP) by 2026, up from QAR 48.5 billion in 2015.
Global LNG demand reaches 265 million tonnes in FY16: Shell
Global demand for LNG saw imports increasing by 17 million
tonnes to reach 265 million tonnes in FY16. The demand increase was
due to the addition of six new importing countries since FY15:
Colombia, Egypt, Jamaica, Jordan, Pakistan and Poland. LNG demand
is expected to grow at the rate of 4-5% between FY15 and FY30,
according to Shell.
Qatar is expected to target a number of key LNG import growth
markets in emerging Asia and Latin America, according to BMI
Research. In BMI's view, Qatar's expanding investments abroad
allows the country to overcome domestic production constraints,
diversify its production base and secure entry into new
international markets.
Macroeconomic Update
According to the Ministry of Development Planning and Statistics
(MDPS), the Qatari economy continued to grow in Q4 2016, with GDP
rising 1.7% compared to Q4 2015. The non-hydrocarbon sector GDP
grew 5.9%, mainly driven by expansion in construction, financial
and insurance services and real estate activities. The hydrocarbon
sector GDP shrank 2.5%. Moreover, Q3 2016 GDP growth was revised
upwards to 3.9% from 3.7% reported previously.
Going forward, the Investment Adviser believes that Qatar's real
GDP growth is set to remain robust, driven by strong growth in the
non-hydrocarbon sector.
According to the International Monetary Fund (IMF), economic
growth in Qatar is anticipated to remain the strongest in the GCC
in 2017, as development of major projects in the run-up to the 2022
FIFA World Cup is expected to continue to have a positive impact on
the economy. The IMF expects a GDP growth rate of 3.4% for Qatar in
2017.
According to the QNB Group, real GDP growth in Qatar will remain
strong at 3.8% in 2017 and 4.1% in 2018, as the ramp-up in
investment spending and initial gas production from the Barzan gas
project would accelerates economic growth.
The population in Qatar grew by 7.3% YoY in FY16 to reach 2.67
million at the end of February 2017, an all-time high, driven
primarily by the influx of expatriates. Population growth is
expected to remain strong, as large projects continue to attract
expatriates. Therefore, high levels of personal consumption is
expected to continue to benefit domestic consumer and services
sector companies.
Moreover, Qatar's recent decision to lift the moratorium on new
gas development at North Field could give it a competitive edge
after 2020, when the global LNG market is expected to tighten.
Valuations
Market Market PE (x) PB Dividend
Cap. (x) Yield (%)
----------- ------------ -------------- ------ -----------
USD million 2017E 2018E 2017E 2017E
----------- ------------ ------ ------ ------ -----------
Qatar 132,935 13.1 11.5 1.7 3.8
----------- ------------ ------ ------ ------ -----------
Saudi
Arabia 441,474 14.4 13.0 1.5 3.2
----------- ------------ ------ ------ ------ -----------
Dubai 83,621 10.4 9.2 1.2 4.3
----------- ------------ ------ ------ ------ -----------
Abu Dhabi 121,134 12.4 10.9 1.3 4.2
----------- ------------ ------ ------ ------ -----------
Oman 16,805 10.0 9.2 1.0 NA
----------- ------------ ------ ------ ------ -----------
Source: Bloomberg, Prices as of 05 April 2017
Outlook
The Investment Adviser believes that Qatar is well positioned
for continued growth as macroeconomic fundamentals remain strong.
With the recovery in oil prices following the agreement among oil
producers to cut production, the Qatari government will have higher
flexibility in continuing its commitment to planned major
infrastructural projects in line with the Qatar National Vision
2030. Additionally, Qatar's fiscal buffers and sizeable assets
should help it maintain its position as one of the stable economies
in the GCC region.
Ongoing high investment spending will help drive growth in
Qatar's non-hydrocarbon sector, while output gains from the Barzan
gas facility will improve the contribution from the hydrocarbon
sector.
Banking sector credit growth is likely to be strong on the back
of higher consumer lending and project financing activities. The
Investment Adviser believes that for these reasons, the Qatari
economy and the Qatari stock market is likely to remain attractive
to investors.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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