Two potential catalysts this week could stabilise, potentially reverse Qatar equities' -27% ytd loss:
GCC Summit: Host Kuwait has invited Qatar's emir to the summit. Qatar stocks would benefit from any (surprise) signs of detente with the Saudi bloc. Whilst the Saudi-led economic boycott has taken its toll through 2H17, economic deterioration may stabilise and - for some metrics - may even improve into 2018. Insofar as the geopolitical stand-off does not intensify (base case: unchanged policy stance, with some risk of detente), fundamental deterioration may not accelerate further.
MSCI FX decision: MSCI is expected to decide by 5 Dec whether to use the Qatar Central Bank's official QAR exchange rate (or alternatively the offshore QAR rate) to value the country’s stocks after complaints that the Saudi-led boycott was making access to the official exchange rate difficult. Assets held by Qatar's SWF are enough to maintain an exchange rate of 3.64 QAR to USD, but the Saudi-led embargo has resulted in a gap between the onshore and offshore rates. Clarity with respect to this decision could be a technical positive.
Qatar ETF (QAT) ytd performance vs Saudi (KSA), UAE and Egypt (EGPT):
GCC Summit ended a day early and Qatar's emir found himself as the only head of state attending (outside of Kuwait). Saudi and UAE signalled a stronger union. So, no breakthrough in the Qatar blockade, but - as yet - no worsening. Expectations weren't astronomically optimistic, so for now we are just seeing the Qatar Exchange (DSM Index) paring back the gains from Monday:
Clarity is a technical positive. From here, with less upside from geopolitics, we watch domestic fundamental improvement and technical rotation in flows.
“MSCI Keeps Qatar Onshore FX But Leaves Door Open for Change (1)
Wednesday, December 6, 2017 02:44 PM
Company may switch to offshore rate without consultation
Index provider consulted with investors on which rate to use
(Bloomberg) --
Index provider MSCI Inc. will continue using the onshore foreign exchange rate of Qatar’s riyal, for now. It may decide to switch to the offshore riyal if the gap between the two rates widens.
“MSCI will continue to closely monitor the accessibility of the Qatari FX market and may potentially decide to switch to the offshore FX rates in the future should the situation materially deteriorate,” the index provider said in an statement Dec. 5. The change to offshore rates could happen without consultation “should there be any material and persistent increase in the spread between the offshore and local FX rates.”
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