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The Fund, The Country and Football – part two

Arab-Museum-of-Modern-Art
Arab-Museum-of-Modern-Art

Part II: Tensions?

Asked about the tensions that resonate throughout many of the Arab nations, Wilson said: “Qatar is a lot more progressive than some of the other countries in the region. I’ve spent quite a bit of time there, going three to four times a year and you don’t get any feeling of oppression, or that people feel in any way inhibited by conservatism.

“Everyone is happy with the way things are. They like it, there’s no such thing as a poor, unemployed Qatar citizen.” Official unemployment stands at 0.3% and as Wilson pointed out: “If you haven’t got a job, you don’t go to Qatar.”

As to external pressures, Wilson is equally confident that these are insignificant for Qatar. He said the country has the advantage of being home to the largest US military base outside of America. “Qatar takes a reasonably low profile in international affairs. It has become more focussed domestically in improving the situation in the country, improving the infrastructure, but the prospect of unrest in Qatar, or an attack on Qatar is just so low as to be dismissible.”

Problem Down The Line?

Asked whether the current boom will fuel a problem down the line, when the football fans leave, Wilson is dismissive: “The on-going development will extend well after the World Cup. There are certain projects directly linked to the World Cup 2022, building some extra hotels and stadia for example, but the other things like upgrading the road system, the metro system, the overland rail system, these were going to be done anyway and were in hand long before they won the right to host the world cup.”

Tourism, from inside and outside the region, is also going to play an increasingly important part over the coming years, as Wilson pointed out: “Tourism is booming and occupancy rates are high. I’ve been going there since 2007, and okay you can spot the suits that go there to do the deals, but there are more and more tourists, people on the beach, around the pool.”

It would be a mistake to see Qatar as just about oil and gas. There are many other industries represented, including steel and they also have one of the largest aluminium plants in the world. What’s more, the financial services industry is flourishing said Wilson and it’s approaching 50% of the index on the Qatar Stock Exchange. It is also the biggest allocation within Wilson’s Qatar Investment Fund.

Can’t Invest Directly In Oil And Gas Industry

Ironically, you can’t invest directly in the oil and gas industry in Qatar, as that is owned by the Government, but as Wilson explained, a very good proxy for the economy is the banking sector: “With the infrastructure spend, with the increase in population and the expansion of the financial services, it all feeds into the banking sector.”

The Qatar Investment Fund portfolio is weighted over 50% in banking stocks and around 15% industrials, telecoms and insurance. As to why Qatar is being chosen over other countries in the region as a place to invest, Wilson believes it comes down to mainly high dividend yields, which are about 4.4% currently, coupled with low valuations.

The country has just recently achieved another milestone, being accepted by the MSCI as an emerging economy, rather than its former frontier market status. This has meant increased foreign investment and introduced a lot of liquidity. As Wilson said: “It confirms that business conditions are investor friendly and that there is a lot of institutional interest in Qatar as a place to invest.”

For Wilson, the Qatar investment case is strong: “A combination of a stable economy, strong earnings growth, low valuations, high dividend yield and with the merging market status, it’s a pretty compelling investment opportunity.”

Results

The fund recently announced its final results for the year ended 30 June, 2015. Profit for the year was US$22.6 million, with earnings per share at 15.31 cents. Net asset value per share rose 8.4% compared to 6.2% for the Qatar Exchange and a rise of 4.6% in the MSCI Emerging Markets Index. Shareholders received a 3.5c per share dividend in January and the Board intends to pay an increased four cents per share dividend for the period to end June 2015.

Nick Wilson Chairman Qatar Investment Fund plc
Nick Wilson Chairman Qatar Investment Fund plc

Wilson told shareholders: “The performance of the Qatar Exchange was strong despite headwinds from lower oil prices and the ending of the effect of the MSCI upgrade which occurred in June last year. Saudi Arabia, Kuwait, Oman and Bahrain posted negative returns during the period but the Qatar Exchange remained resilient.

“Looking ahead, the Qatar market is expected to perform well over the long term on the back of strong fundamentals, infrastructure spending, nonhydrocarbon sector growth and a rising population. The liberalisation of rules governing international investment means that Qatar is well and truly open for business.”

Over the summer the fund has also faced an issue with its stock exchange listing, as there were worries that not enough of the shares were in public hands. Listing rule 6.1.19R says that there has to be a minimum of 25% of the shares out in the wider domain. On 24th August, the company issued an announcement which stated: “The directors of the Company can confirm that, to the best of their knowledge, the free float has now been restored to above the minimum 25 per cent. threshold required under Listing Rule 6.1.19R, and believe that the free float is approximately 27.35% of the Company’s issued share capital.

“Certain of the Company’s shareholders who have an interest in 5 per cent. or more of the Company’s issued share capital have confirmed that a proportion of their shareholding in QIF may be disregarded under Listing Rule 6.1.20B for the purposes of calculating the Company’s free float, where such shares are held by separate investment managers each of whom make investment decisions independently.”

Wilson

Wilson, who now lives in the Isle of Man, started his working life as a petroleum geologist in Libya. He moved there in 1967, two years before the reign of Gaddafi. When things got “difficult” in Libya, he moved to the Isle of Man and entered the financial services sector.

He describes himself as very knowledgeable about Arab affairs and keeps himself busy not only with the Qatar Investment Fund, but with a number of directorships within the financial services sector.

Asked what he does to relax, he replied coastal fishing around the Isle of Man, where he said “…you catch big fish…”

It would be a fair bet that throughout his long career, Wilson has caught some very big fish indeed.

Read Part One.

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