As Qatar’s Islamic financial services (IFS) sector expands, options are multipling for investors wishing to deploy their assets in a sharia-compliant manner. A key development in this regard came in 2013, when the nation’s stock market, the Qatar Stock Exchange (QSE), teamed up with Al Rayan Investment, a subsidiary of Qatar’s second-largest Islamic bank, Masraf Al Rayan, to create the Al Rayan Islamic Index. The new index, based on QSE-listed stocks, uses a weighting scheme designed to ensure both trade-ability and diversification across the exchange’s various sectors: in essence, large caps are prioritised by weight, though small- and mid-cap stocks from the best-performing sectors are still represented. To investors, its arrival offers a useful opportunity to steer capital into a subset of sharia-screened companies with strong fundamentals.
The implications for the wider IFS sector are significant. “As the first exchange-sponsored, sharia-compliant index in the region, this will accelerate the development of the Islamic asset management industry in Qatar,” Adel Mustafawi, CEO of Masraf Al Rayan, told local media at its launch. “Considerable emphasis has gone into making the QSE Al Rayan Islamic Index an attractive vehicle to access the Qatar growth story.” The index put in a strong showing in 2014: starting the year at around 3100 points, it hit an annual high of 4300 in August before easing to around 4000 at the close of the year.
REGIONAL PLAYER: Thanks to the activities of institutions such as Masraf Al Rayan, Qatar is emerging as a centre of sharia-compliant asset management. Another local player, Doha-based QI nvest, has become one of the region’s most prominent Islamic financial firms, active in asset management, investment banking and principal investments. Within its asset management division, the QI nvest Managed Account Platform provides clients with access to a range of high-quality equity and sukuk funds, which are evolving to take advantage of opportunities beyond the GCC. In January 2015, the bank announced pans to start a European fund through which Islamic finance investors can tap into the growth expected to arise from the European Central Bank’s bond-buying programme.
Alongside investment banks, Qatar’s four universal Islamic banks offer investment products like equity participation and investment funds to both retail and corporate clients. Qatar Islamic Bank has teamed up with QI nvest, of which it is the main shareholder, to offer its “Shiraa” products spanning international equity and sukuk markets at various levels of risk: a “defensive fund” focusing on capital preservation, a “moderate fund” seeking competitive returns, and a “long-term fund” pursuing higher returns through higher risk. Masraf Al Rayan’s Al Rayan GCC Fund, set up in 2010, invests in regional firms with a focus on medium- to long-term equities, though its scope includes GCC fixed-income and money-market instruments. Qatar International Islamic Bank offers sharia-compliant products including participation in investment funds, Islamic equities and sukuk. Barwa Bank’s flagship investment vehicle is the GCC Equity Opportunities Fund, an open-ended investment scheme limited to Qatari nationals and institutions that aims for long-term capital growth via a mixed portfolio of securities listed on the regional exchanges.
BRIGHT FUTURE: Momentum is clearly building in Qatar’s Islamic asset management sector, yet challenges remain as potential hindrances to its future expansion. Regionally, inadequate regulation and a shortage of skilled fund managers are often cited as hurdles to fund development, which have allowed the more nimble regulatory jurisdiction of Ireland to overtake many regional markets as host to more than 50 sharia-compliant funds. The continued expansion of Qatar’s Islamic asset management sector is, therefore, inextricably linked to improving regulation of its banking and capital markets sectors.
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