Qatar Goes Its Own Way As An Emerging Market In The Gulf

Doha makes a play.

On July 10, the Qatar Investment Authority (QIA), based in the capital city of Doha, announced that it was buying a minority position in Monumental Sports & Entertainment – owners of the NBA’s Washington Wizards and NHL’s Washington Capitals, to name a few. The QIA is no stranger to Washington. It is the principal owner of CityCenterDC, a mixed-use real estate development which brought a little bit of Doha swag to the capital.

"From a political standpoint, it means further legitimizing Qatar as a business partner in the West, including in the heart of American politics," Yoav Dubinsky, Instructor of Sports Business in the Lundquist College of Business at the University of Oregon, told ESPN.

Qatar has long charted a policy path that is different from its neighbors. Unlike rivals Saudi Arabia and United Arab Emirates, Qatar has made no overtures to joining the BRICS+ movement – a group of countries led by Brazil, Russia, India and China that seek to create an alternative to the G7, politically and economically.

Qatar is well-placed to “pursue its national transformation journey, ensuring sustainable economic growth, and continuing to build a knowledge-based economy while improving the overall quality of life,” Bassam Hajhamad, Qatar Country Senior Partner and Consulting Lead at PWC PWC in Doha wrote in a Qatar investment report back in February.

As an emerging market investment story, Qatar is smaller than Saudi Arabia and the UAE UAE . On the other hand, that makes Qatar a lower-cost investment for portfolio investors. The iShares MSCI Qatar (QAT QAT ) has a 72% correlation with Henry Hub natural gas spot prices, making it like a utility-plus stock, and it pays dividends of nearly 5%. This is thanks to Qatar being the dominant LNG force in the region, which is a cash cow. Qatar plans to increase its liquefied natural gas (LNG) capacity to 110 million tons per year by 2026, Reuters reported.

“Sustained high energy prices and increased demand for alternative natural gas supply to Western Europe will continue to propel Qatar’s development,” Hajhamad says.

Investors have been rewarded compared to the general emerging market benchmark.

Since 2020, without the help of a printing press or Covid stimulus checks, Qatar outperformed the MSCI Emerging Markets Index by more than 700 basis points.

Investments in iShares MSCI Qatar fund are up only around 2%, but that’s better than investments in the iShares MSCI Emerging Markets (EEM EEM ), dominated by China, which is down nearly 9% since 2020. The United States Natural Gas Fund (UNG UNG ), an exchange-traded fund that tracks natural gas futures, is down 60.4%.

Qatar is AA rated. Its bonds pay around 4% yield. They’re not a debt risk.

Fitch Ratings upgraded Qatar’s profile in May.

Restrained current spending trends will allow Qatar to maintain budget surpluses until 2025, even with natural gas prices in decline from its Ukraine war peaks last year, Fitch analysts, led by Cedric Berry, wrote in their report in May. North Field natural gas expansion will bring in more revenue and lower Qatar’s debt ratio. Fitch forecasts their debt/GDP ratio to fall to about 45% of GDP in 2023 and 42% in 2024, from a peak at 85% in 2020.

Qatar Turns Inward

Qatar is considered an ally and friend of the U.S, but as recently as 2017, President Trump was tweeting about Qatari support for terror and praised its neighbors for taking a harder line against extremism.

Qatar was confused by this and denied funding groups like Hamas. Doha's leaders never blamed Trump himself, but Qatar investors lost around 10% in the following 12 months, with MENA emerging market investors shifting into UAE and Saudi Arabia instead. The iShares MSCI Saudi Arabia ( KSA ) ETF rose over 24% in the year following the June 6, 2017 tweet.

Sheikh Tamim bin Hamad Al-Thani, who assumed power ten years ago in June 2013, when he was just 33, now had his entire neighborhood against him. Qataris were not welcome in Bahrain, Egypt, Saudi Arabia or the UAE. Trade was restricted.

“A few weeks before that, we were meeting, all of us together, in one room, including President Trump,” he told CBS’ Charlie Rose at the time. “We were discussing terrorism, financing terrorism. And nobody brought any concern from those countries,” he said of the UAE and Saudi Arabia. “Nobody told me anything. We were praising each other, laughing with each other.” When asked why he thinks Riyadh, Abu Dhabi and Cairo ganged up on Doha, he told Charlie Rose on Oct. 29, 2017: “They don't like our independence, the way we are thinking, our vision for the region. We want freedom of speech for the people of the region. And they're not happy with that. And so they think that this is a threat to them.”

Qataris were never part of the Arab Spring movements, and they supported Sheikh Tamim during the tumultuous blockade, which only ended two years ago, in 2021.

When Shiekh Hamad handed the reins of power to his son, observers at the time noted that it was a “first in the modern history of the region.” The norm is for Gulf leaders to rule for decades until their death or until circumstances conspire to overthrow them.

Over the last few years, Sheikh Tamim's domestic focus has brought in new leaders, mainly at Qatar Petroleum and QIA. He also spearheaded the establishment of a popularly elected legislature, cracked down on corruption by bringing charges against the Minister of Finance, improved labor regulations and imposed new restrictions on the use of capital punishment, among other things.

Geopolitics: Less Risky for Qatar Investors

With the blockade over, geopolitics from a U.S. investor standpoint are less risky now.

Sheikh Tamim has positioned Qatar as Washington's favorite intermediary across both Republican and Democratic administrations.

At the U.S.'s request, Qatar served as the go-between for negotiations to end the conflict in Afghanistan. Its trust within the leaders of Afghanistan proved critical in managing the chaos of the fall of Kabul.

Both the United States and Israel have relied heavily on Qatar to restrain Hamas and to provide a much-needed financial lifeline to Palestinians.

The Biden administration has found the Qatari relationship with Tehran of value in negotiating the release of Americans held by Iran.

On the BRICS+ front, while Qatar is a participant in the Shanghai Cooperation Organization to some extent, they have not made any overtures to wanting to join forces with the BRICS crew, which meets in South Africa next month.

David DesRoches, a professor at the Near East South Asia Center for Strategic Studies at the National Defense University in Washington, has a good take as to why Qatar is not getting involved in that.

“The UAE and Saudi Arabia appear to have concluded that the U.S. is a somewhat unreliable partner, at least under Biden, and that they are wise to decrease their reliance on them. But Qatar, on the other hand, appears to have concluded that it is only the moderating influence of the U.S. which helped preserve its national sovereignty,” he said about the blockade days.

“Since the resolution of the blockade, Qatar’s policies have taken a notable shift towards Washington. The UAE and Saudi Arabia seem to be engaged in measures that would reduce their vulnerability to any coercive American measures, be they sanctions or embargo of key military equipment,” says DesRoches.

Within the Gulf States, Riyadh, Abu Dhabi, Dubai and Doha are now trendy and cities, with Doha increasingly open to expats and foreign businesses. It has become a stable area for investors, and with the war on terrorism an afterthought in Washington, the investable region is no longer deemed a potential powder keg by Wall Street.

Following Qatar's lead, King Salman of Saudi Arabia upended dynastic precedent in 2017 by designating his 31-year-old son Mohamed bin Salman as the country's crown prince and future ruler.

Bahrain rejuvenated its leadership in 2020, when the 84-year-old Prime Minister Sheikh Khalifa bin Salman Al Khalifa, the world's longest-serving head of government, was succeeded upon his death by the 50-something Crown Prince Salman bin Hamad bin Isa Al Khalifa.

In what appears to be a tacit acknowledgment of Qatar’s position of maintaining relations with Iran, Saudi Arabia and the UAE – with China as a mediator – leaned into Qatar’s position on Iran by opting to reopen embassies there this year.

Has this benefited investors? That depends on what Qatar gets compared to and over what period.

“The Qatari story is also a win for Europe if they want to freeze out Russian supplies of gas, because Qatar can be shoe-horned right into European energy needs,” says Vladimir Signorelli, head of Bretton Woods Research, a macro investor research firm. “It was cool that they were on the other side of the Yemeni struggle, and I think that was what drove the boycott. Their leadership weathered that well. If that whole region cools down, Qatar will reap the benefits. But as a MENA investment, Qatar is a lagging play for now.”