Foreign net inflows into Qatar equity market stood at $2.2bn in 2018

GCC countries are in the process of opening their economies to make them more attractive to foreign investors. Foreign equity inflows into GCC capital markets is expected to rise sharply in the coming years, aided by the recent inclusions of two markets in the region in emerging market indices by global index providers such as MSCI, FTSE and S&P.

Markaz Research noted Qatar’s markets were the best performer in 2018 in terms of price returns as well as net foreign portfolio inflows in 2018. Its inflows amounted to $2.2bn in 2018, up from a net outflow of $445m in 2017. Qatar’s ability to successfully manage the diplomatic isolation of GCC neighbours helped in changing the outlook of global investors on Qatar in 2018.

Markaz analysts said the influx of foreign capital into GCC equity markets would contribute to broader development of GCC markets and may allow domestic companies to raise capital at favorable rates from an enlarged base of investors. This in turn, will lead to higher growth of the private sector in these countries, a major objective of the governments in the region as part of their focus on growth of the non-oil economy.

According to data from IIF, non-resident flows into GCC equity markets have been sluggish in the past two years, falling from $6.7bn in 2016 to $2.2b and $2.7bn in 2017 and 2018 respectively. Foreign portfolio investments into Saudi Arabia have been historically low, with 2018 seeing further deterioration due to geopolitical issues in the second half of the year. Saudi Arabia’s markets witnessed an outflow of $99m in 2018, as against an inflow of $1.2bn in 2017.

Net foreign portfolio inflows into Kuwait’s equity markets in 2018 rose to $378m in 2018 from $56m in 2017, as the integration into FTSE EM index took place during the year.

With several reforms being initiated and upgrades secured from global indices providers, GCC capital markets have attracted the attention of global investors. The flows from foreign investors into the equity markets in recent times look promising.

The next one year is expected to be a busy period for GCC equity markets with the eyes of global emerging market investors focused on the region due to index inclusions. The time is right for GCC countries to push forward with further reforms and sustain the inflow of foreign capital. The role of capital markets does not end with index inclusion. They must ensure that corporate governance standards and disclosures are improved. Stricter regulations need to be enforced to improve transparency for market participants. Steps must be taken to encourage and incentivize more companies to seek listing and not remain as privately companies and family businesses. Capital market authorities must also facilitate listed companies to raise capital easily.

According to Markaz analysts, to encourage investors, new products must be introduced in the regional markets so that liquidity remains strong, and investor confidence increases. Capital market authority needs to work towards making equity an attractive asset class for domestic investors. All this will ensure that GCC markets’ index inclusions are not merely a flash in the pan, but a progressive step to help in achieving the broader objectives of the GCC governments to increase the inflow of foreign funds into the region for a faster and stable form of economic growth.

Source from: The Peninsula