TIDMQIF
RNS Number : 9084M
Qatar Investment Fund PLC
26 January 2016
27 January 2016
Qatar Investment Fund plc ("QIF" or the "Company")
Q4 2015 Investment Report
Qatar Investment Fund plc (LSE: QIF), today issues its Q4 2015
Investment Report for the period 1 October 2015 to 31 December
2015, 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 - Q4 2015
3 months ended 31 December 2015
Highlights
Ø Qatar Investment Fund Plc's ("QIF") net asset value (NAV) per
share net of dividends fell 14.6% in 2015 while Qatar Exchange
Index (QE) fell 15.1%.
Ø In Q4 2015, QIF's NAV per share before dividends fell
7.7%.
Ø Qatar expected to report its first fiscal deficit in 15
years.
Ø Qatar's economy continues to grow, with real GDP up 3.8% in Q3
2015, driven by 7.8% growth in the non-hydrocarbon sector. GDP is
expected to grow 4.7% in 2015 and 6.4% in 2016 and similar in
2017.
Ø Qatar's 2016 budget focuses on long term infrastructure
development with the government committed to spending despite low
oil prices.
Ø For the first nine months of 2015, profits of Qatari listed
companies rose 6.4%.
Ø Valuations are compelling. Qatar Index now at a significant
discount to its 10-year historic average PE.
Ø Credit growth strong - up 13.8% in 11 months to November
2015.
Ø Qatar's economy expected to perform better than other GCC
countries, as macroeconomic fundamentals remain strong.
Performance and Portfolio Structure
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.
QIF's NAV before dividends decreased by 7.7% in Q4 2015, while
QE was down 9.0%.
As at 31 December 2015, QIF shares traded at a 12.7% discount to
NAV.
Historic Performance against the QE Index
2007 2008 2009 2010 2011 2012 2013 2014 2015
5M
----------- ------ ------- ------ ------ ------ ------ ------ ------ -------
QIF NAV* 13.9% -36.4% 10.4% 29.9% 1.3% -4.7% 24.2% 20.6% -14.6%
----------- ------ ------- ------ ------ ------ ------ ------ ------ -------
QE Index 27.0% -28.8% 1.1% 24.8% 1.1% -4.8% 24.2% 18.4% -15.1%
----------- ------ ------- ------ ------ ------ ------ ------ ------ -------
QIF Share
Price 15.5% -67.5% 97.3% 23.0% -2.3% 2.4% 26.4% 17.4% -17.0%
----------- ------ ------- ------ ------ ------ ------ ------ ------ -------
*Net of dividends paid
Source: Bloomberg, Qatar Insurance Company
Portfolio Structure
Top 10 Holdings
Company Name Sector % Share of
NAV
-------------------- ------------------- -----------
Qatar National Banks & Financial
Bank Services 18.2%
-------------------- ------------------- -----------
Industries Qatar Industry 11.9%
-------------------- ------------------- -----------
Banks & Financial
Masraf Al Rayan Services 11.0%
-------------------- ------------------- -----------
Gulf International
Services Industry 8.4%
-------------------- ------------------- -----------
Qatar Electricity
& Water Co Industry 7.7%
-------------------- ------------------- -----------
Qatar Islamic Banks & Financial
Bank Services 7.3%
-------------------- ------------------- -----------
Commercial Bank Banks & Financial
of Qatar Services 5.7%
-------------------- ------------------- -----------
Qatar Insurance
Company Insurance 5.1%
-------------------- ------------------- -----------
Barwa Real Estate Real Estate 5.1%
-------------------- ------------------- -----------
Ooredoo Telecoms 4.7%
-------------------- ------------------- -----------
In Q4, Qatar Insurance Company and Ooredoo replaced Qatar Gas
Transport (Nakilat) and Doha Bank in QIF's top 10 holdings. The
Investment Adviser allocated funds to Nakilat in the last quarter,
ahead of the MSCI index review in November 2015. The strategy
worked as MSCI then included Nakilat in its Emerging Markets index
in the review, with the share price rising 4.9% over the quarter.
The Investment Adviser took profits and reduced the portfolio
weighting. Exposure to Doha Bank has been reduced. The stock fell
11.4% during the quarter.
Country Allocation
At 31 December, QIF had 17 holdings, all in Qatar. At the end of
Q3 QIF had 18 holdings in Qatar and two in UAE. The Investment
Adviser closed two positions in the UAE, mainly due to the
weakening macroeconomic environment.
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
December 2015.
QIF remains overweight the Qatari banking sector (including
financial services) at 43.2% of NAV (Q3 2015: 53.7%) compared to a
QE banking sector weighting of 40.5%. According to Qatar Central
Bank data published in November 2015, banking sector assets have
grown 9.3% in 2015, mainly driven by a 13.8% rise in loans. The
sector is expected to continue to benefit from government spending,
international expansion of Qatari banks and a growing
population.
Industrials remain QIF's second largest exposure at 28.0% (Q3
2015: 24.6%), mainly in Industries Qatar (11.9% of NAV). The
Investment Adviser reduced exposure to Industries Qatar, while
increasing exposure in Gulf International Services, as the latter
stock fell 20.8% during the quarter and valuations started looking
attractive. QIF also increased exposure to Qatar Electricity &
Water Co.
QIF's weighting in the real estate sector increased from 6.6% in
Q3 to 9.0%. Exposure to the telecom sector increased to 4.7%,
following substantial improvement in Ooredoo's financial
performance in Q3. QIF added exposure to the insurance sector with
a 5.1% weighting in Qatar Insurance Company (QIC), as valuations
started looking attractive. Further, QIF marginally reduced
exposure to transportation and consumer goods & services.
Regional Market Overview
During Q4, all GCC markets fell as oil prices continued to
reduce. The Bloomberg GCC index was down 6.0%. Dubai was the worst
performer, down 12.3%, with Saudi Arabia, Oman and Kuwait down
6.7%, 6.6% and 1.9%, respectively.
The Qatar market declined 9.0%, led by double digit declines in
the real estate, insurance, banking & financial and consumer
sectors. In November 2015, the Qatar market reported the steepest
fall in the GCC region, down 13% month-on-month. This was led by
Gulf International Company with a decline of 26.7% following its
exclusion from MSCI's Emerging Markets Index. In October and
December the Qatari market rose.
Taken as a whole 2015 proved to be challenging for GCC markets:
Qatar fell 15.1% albeit less than Saudi (down 17.1%) and Dubai
(down 16.5%). Over the year, the banking sector declined 12.4%,
while the industrials were down 21.1%. Telecoms fell 34%. However,
transportation, real estate and insurance sectors gained 4.9%, 3.9%
and 1.9%, respectively.
The Qatar market showed resilience compared to other GCC
markets. In the 18 months to 31 December 2015, Qatar fell 9.2% and
was the second best performer after Abu Dhabi (down 5.4%). In this
period the price of a barrel of Brent crude fell 66.8%. Over the 18
months Saudi fell 27.3%, Dubai 20.1% and the Oman and Kuwait fell
22.9% and 19.5%, respectively.
The Investment Adviser believes the Qatar market sell-off is
overdone and remains optimistic on Qatar over the medium to longer
term because of its superior growth prospects and an expanding
non-hydrocarbon sector.
Please refer to the IMS on the Company's website
www.qatarinvestmentfund.com/publications/quarterly-reports/ for a
chart depicting the performance of markets since end of June
2014.
On the ground: a period of adjustment
Increased worries about the regional as well as global economy,
together with falling oil prices continue to weigh on stock markets
across the GCC. Oil prices have also hit state finances across the
GCC, including Qatar. Qatari companies have started taking cost
cutting measures.
The impact on Qatar's state revenues has raised concerns about
liquidity. Public sector deposits started to decline, especially
through the second half of the year. Loan growth has been
significant at 13.8% in the year to November 2015, while total
deposits have risen by just 5.5%, resulting in liquidity pressures
in the banking system. Consequently, loans to deposit ratio stood
at 117%, compared to 109% at the end of December 2014. Overall,
loan growth is expected to remain healthy at 15% on a run-rate
basis for 2015. Further, cost of funding is likely to increase due
to liquidity concerns, leading to compression in net interest
margins (NIMs). Asset prices in Qatar are already at high levels
and liquidity tightening might result in increased payment cycles
for the contractors segment.
(MORE TO FOLLOW) Dow Jones Newswires
January 26, 2016 02:00 ET (07:00 GMT)
In November 2015, the government of Qatar initiated talks with
banks for syndicated loans of US$10 billion to bolster state
finances depleted by low oil prices. Recently, the government
announced a loan of US$5.5 billion from a consortium of banks,
which is expected to ease illiquidity issues to some extent.
Moreover, the Investment Adviser expects Qatar may tap
international markets for additional sources of funds and issue
international bonds.
The Investment Adviser believes that the liquidity concerns in
the Qatari banking system are likely to continue in the near term.
However, Qatari banks are expected to slowly overcome these by
issuing bonds and as public sector deposits coming back to Qatari
banks. The Investment Adviser reassessed valuations in the banking
sector and performed its own stress testing on banking models and
found that despite liquidity concerns, banking sector valuations
appear attractive.
Qatar is well positioned to weather the current oil price
environment
As a consequence of oil price falls, GCC countries are opting
for reforms such as lowering subsidies and increasing fuel prices.
According to reports, energy subsidies account for 3.4% of GDP for
GCC countries.
In July last year, the UAE government deregulated fuel prices
and introduced a new pricing policy linked to global prices.
Recently, Saudi Arabia increased fuel prices by 50%, as the country
posted a US$98 billion budget deficit in 2015. Oman is likely to
follow suit with the cabinet recently approving, in principle,
spending cuts, tax rises and fuel subsidy reforms to cope with the
compression of state finances as a result of low oil prices.
Over the past 12 months, LNG spot prices in Asia have declined
from around US$10 per million British thermal units (mmbtu) to
around US$6.5 per mmbtu, tracking the fall in oil prices together
with lower demand from Asia and Europe. This drop in spot market
prices for LNG is likely to put additional pressure on long-term
LNG contract prices for Qatar. Although majority of the Qatari LNG
production is still bound to long-term contracts, the recent
decline in spot market LNG prices has increased the proportion of
short-term agreements. Moreover, the recent fall in oil and gas
prices has put some pressure on Qatari hydrocarbon revenues.
However, Qatar is well positioned to weather the current low oil
price environment due to its comparative advantages such as low
production cost, long term nature of contracts, excellent
geographic location which results in lower transportation costs,
and easy access to Asian and European markets.
Qatar State Budget for 2016 - focuses on long term
infrastructure development
Qatar announced its state budget for 2016 which is aimed at
achieving a balance between revenues and expenditure to improve
financial stability and achieve economic expansion. It ensures the
continued implementation of development projects based on the
planned schedule. With an announcement of the budget for 2016,
Qatar has shifted its fiscal year end from 31 March to 31
December.
The 2016 budget focuses on long term infrastructure development
ahead of the FIFA 2022 event. The budget assumes an oil price of
US$48 per barrel, lower than the US$65 per barrel previously,
translating into budgeted revenue of QAR156 billion, a decrease of
30.9% from FY2014-15 (April 2014 to March 2015). Total government
spending is expected to decrease 7.3% to QAR202.5 billion, compared
to QAR218.4 billion planned in the FY2014-15 budget. As a result,
Qatar is expected to report its first fiscal deficit in 15 years
estimated at QAR46.5 billion, about 4.8% of GDP. The shortfall is
likely to be covered by issuing local and international debt.
The latest budget shows a commitment to sustainable development,
with allocation to major projects growing by QAR3.3 billion to
QAR90.8 billion in 2016. The majority of capital outlay is for the
infrastructure, health and education sectors, representing over 45%
of total budgeted expenditure. The budget allocates QAR50.6 billion
to the infrastructure sector, about 25% of total expenditure, while
the education sector has an increased outlay of QAR20.4 billion.
The Qatari government has also earmarked QAR20.9 billion for the
health sector, with funds allotted to Sidra Medical and Research
Center, Hamad General Hospital and Hamad Medical City. The budget
has also allocated QAR2 billion for housing loans through Qatar
Development Bank.
Qatar State Budget Highlights
QAR Billion FY 14-15 Apr-Dec Apr 14- CY 2016
15 Dec 15
(12 months) (9 months) (21 months)
---------------------- ------------- ------------ ------------- --------
Total Revenues 225.7 169.3 395.0 156.0
---------------------- ------------- ------------ ------------- --------
Total Expenditures 218.4 163.8 382.2 202.5
---------------------- ------------- ------------ ------------- --------
Surplus / Deficit 7.3 5.5 12.8 (46.5)
---------------------- ------------- ------------ ------------- --------
Oil Price Assumption
($/bbl) 65.0 65.0 65.0 48.0
---------------------- ------------- ------------ ------------- --------
Note: From 2016, Qatar will follow the Gregorian calendar
Source: Qatar Ministry of Finance, The Peninsula
Please refer to the IMS on the Company's website
www.qatarinvestmentfund.com/publications/quarterly-reports/ for a
chart depicting the reduction in budgeted expenditure and budget
balance as a % of GDP (Year 2016).
Qatar is better positioned compared to other GCC nations, on
account of its better fiscal position. Despite low energy prices,
Qatar has maintained its investment spending in the 2016 budget and
has not opted for any major subsidy cuts. Funding for major
projects increased 3.8% to QAR90.8 billion (US$24.9 billion).
Moreover, Qatar has over QAR261 billion of government projects
(excluding private sector and energy sector projects) underway, of
which over 50% of projects are in the transportation and
infrastructure sectors. Furthermore, the deficit remains lower
compared to other GCC states.
Please refer to the IMS on the Company's website
www.qatarinvestmentfund.com/publications/quarterly-reports/ for a
chart depicting Qatar's accumulated budget surplus.
The Investment Adviser believes that Qatar is well positioned to
weather the depressed oil price environment on the back of strong
historic fiscal balances, low gearing and low breakeven oil prices.
Additionally, ongoing infrastructure spending should continue to
fuel the non-hydrocarbon growth and attract new expatriate workers,
keeping the population rising. This in turn should maintain impetus
for domestic consumption growth.
Qatar: corporate profits up 6.4% during 9M 2015
Qatari listed companies grew profits 6.4% in the first nine
months of 2015, driven by growth in the banking & financial,
transportation and the real estate sectors. However, profits
declined in Q4 by 5.3% compared to Q4 2014.
Sector profitability (net profit/loss in US$000s)
Sectors 9M 2014 9M 2015 % Change Q3 2014 Q3 2015 % Change
--------------------- ---------- ---------- --------- ---------- ---------- ---------
Banking & Financial 4,072,410 4,306,486 5.7% 1,440,854 1,458,461 1.2%
--------------------- ---------- ---------- --------- ---------- ---------- ---------
Insurance 310,740 269,148 -13.4% 80,167 42,483 -47.0%
--------------------- ---------- ---------- --------- ---------- ---------- ---------
Industrial 2,640,435 2,187,986 -17.1% 966,010 781,280 -19.1%
--------------------- ---------- ---------- --------- ---------- ---------- ---------
Services &
Consumer Goods 381,777 383,008 0.3% 126,243 128,810 2.0%
--------------------- ---------- ---------- --------- ---------- ---------- ---------
Real Estate 641,591 1,506,455 134.8% 231,130 154,112 -33.3%
--------------------- ---------- ---------- --------- ---------- ---------- ---------
Telecoms* 571,151 483,005 -15.4% 103,010 207,624 101.6%
--------------------- ---------- ---------- --------- ---------- ---------- ---------
Transportation 443,748 508,228 14.5% 160,560 170,637 6.3%
--------------------- ---------- ---------- --------- ---------- ---------- ---------
Total 9,061,851 9,644,315 6.4% 3,107,975 2,943,407 -5.3%
--------------------- ---------- ---------- --------- ---------- ---------- ---------
* Excluding Vodafone Qatar because of 31 March year end
Source: Qatar Exchange
Banking and financial services sector profit grew 5.7% for the
first nine months of 2015, led by a 7.0% rise in banking sector
profits. Growth in lending, up 9.1% to September 2015, primarily in
the private sector (+17.6%), drove the rise. Qatar National Bank
reported an advance in profit of 9.0%, while Qatar Islamic Bank's
profits rose 24.8%.
The Qatari banking sector growth is expected to remain healthy,
driven by increased lending due to project financing and higher
demand from a growing population. With the Qatari government
maintaining high project spending credit growth is anticipated to
remain healthy. Despite strong growth in lending, asset quality is
expected to remain good.
(MORE TO FOLLOW) Dow Jones Newswires
January 26, 2016 02:00 ET (07:00 GMT)
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