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Historically, equity markets of FIFA World Cup hosts have outperformed peers. Qatar is set to do the same.
Doha, Qatar – Qatar is gearing up for a FIFA World Cup equity market boom as the country’s stock exchange is all set to benefit from the upcoming colossal event.
With more than $4bn of foreign inflows in the first 10 months of this year alone, equity market experts say that Qatar’s stock market, like most previous World Cup host markets, has outperformed peers in the run-up to the mega contest and is expected to continue along similar lines in the year after the tournament.
Historically, the average MSCI country stock market index of host nations of the previous seven World Cups, excluding outlier Brazil, grew by 21.8 percent in the year leading up to the World Cup and by 13.4 percent in the year after, compared with the MSCI World Index average growth of 4.3 percent and 9.5 percent respectively.
Brazil’s MSCI Index was an outlier and declined by 34 percent in the year after the final match in 2014. That drop was on account of domestic economic conditions, a political crisis and high inflation prevalent at the time, analysts say.
However, 2022 is proving to be an extraordinary year as stock markets bear the brunt of interest rate hikes by central banks attempting to fight inflation and turning off the supply of easy money that was started during the pandemic. Qatar’s stock market has not been immune to either.
The QSE Index, which measures the 20 largest and most liquid stocks on the Qatar Stock Exchange (QSE), appreciated as much as 24.7 percent from the start of 2022 to April 11, 2022, but then declined to almost flattish territory in late June and was again up by 12.1 percent year to date on September 5, 2022.
While that may not seem like a lot, it still puts the QSE Index as a relative outperformer among most major regional and global markets in the first eight months of this year, as per the latest data available.
“Given that the country is preparing for the World Cup for more than a decade, to focus on a short period of stock performance won’t be a fair reflection,” said Akber Khan, senior director of asset management at Doha-based Al Rayan Investment.
“If we look at the performance of Qatar’s stock market in the last five years, when preparations related to the World Cup accelerated in terms of the pace of work, Qatar’s stock market is up more than 50 percent,” Khan added.
During that period, the broad index of emerging market equity is down more than 20 percent, while the global equity indices are up about 15 to 18 percent, he pointed out.
‘Show off a developed Qatar’
Since 2010, when Qatar won the rights to host the World Cup, the state has spent more than $300bn to upgrade its infrastructure, including the Doha Metro, thousands of kilometres of local roads and highways, a new port, a new airport, and even a new city, as well as boosting its oil and gas facilities.
“This is really pulling forward a lot of medium-term development projects the state had and in many cases, a lot of projects that would have been completed over a decade are already finished to show off a developed Qatar during the World Cup,” Khan added.
The World Cup gains on the QSE are expected to carry into the next year as well, primarily from construction, real estate, tourism and retail spending that trickles down to the exchange-listed companies and the broader economy as a whole.
“Specifically, Qatar’s objective is to use the event as a springboard to showcase its offerings, and hopefully boost international tourist arrivals from 2.1 million in 2019 to 6 million per year by 2030,” said Saugata Sarkar, head of research at QNB Financial Services.
Qatari equities are already in an investment sweet spot benefitting from unique tailwinds. Adding to high oil and gas prices, significant net foreign investment flows given Qatar’s status as a safe haven, and hosting the upcoming World Cup, the country has also undertaken an expansion of its liquefied natural gas (LNG) facilities that will nearly double its gas output, catapulting it to the pole position as a major producer.
“We believe that these drivers could be largely priced into the market, but should provide the QSE Index with high-quality catalysts that help grow or stabilise the market despite the overall prevalent global risk-off backdrop,” Sarkar said.
“While we cannot rule out near-term volatility in the market, we continue to remain bullish longer-term on Qatari stocks given their defensive characteristics backed by their strong fundamentals. Net-net, we expect strong results from Qatari companies in 2022 largely driven by the FIFA World Cup,” he added.
The spoiler will be the war in Ukraine, he cautioned, which is keeping Qatari and global indices volatile.
Qatar’s stock market outperformed regional peers in first eight months of 2022
However, what works in Qatar’s favour as the world deals with the possibility of a recession is the fact that the country’s economic growth is tied to its gas production.
With new demand coming from Europe because of the Ukraine war and the fact that Qatar is the “lowest-cost” producer, “it is better prepared to absorb the negative impact a recession may have on energy prices,” said Mohsin Mujtaba, director, product and development, QSE. That will also be attractive to foreign investors as they look to rebalance their portfolios in the face of a global slowdown, he added.
According to regional equity experts, the projects initiated by the government of Qatar to host FIFA 2022 will have a long-term effect on listed companies across various sectors.
BDSwiss MENA CEO Daniel Takieddine said in an email that, while the hundreds of thousands of visitors coming for the month-long football tournament will have an immediate effect, “more lasting consequences on the economy and financial markets in the country could be recorded. The widely followed event could draw attention from individuals and companies alike to Qatar as a tourism spot and as an investment destination boosting inflows of capital.”
Oliver Kent, managing director at Dubai-based ZK Sports & Entertainment, said he looks at the World Cup as “just the start of a series of large-scale events that will draw visitors in large numbers, boosting the tourism sector over the longer term”, citing a Formula 1 race and the 2023 Asia Cup that the country will host next year.
Qatar 2022 CEO Nasser al-Khater expects that the FIFA World Cup will contribute $17bn to Qatar’s economy during the event, down from an initial estimate of $20bn.
While the primary beneficiaries will be the hospitality industry, including hotels, malls, shops and retail, Al Rayan Investment’s Khan said several listed small and mid-cap companies that won government contracts as suppliers to larger firms over the last several years will equally benefit. These include firms that provide paving stones and building materials, as well as apartment rental and security services, among others, he said.