Gulf Regulatory News (GIF)

14 October 2016

Qatar Investment Fund plc ("QIF" or the "Company")

Q3 2016 Investment Report

Qatar Investment Fund plc (LSE: QIF), today issues its Q3 2016 Investment Report for the period 1 July 2016 to 30 September 2016, a pdf copy of which can be obtained from QIF's website at: www.qatarinvestmentfund.com.

QIF was established to capitalize on the investment opportunities in Qatar and the Gulf Cooperation Council ("GCC") region, arising from the economic growth being experienced in the area. The Company invests in quoted Qatari equities listed on the Qatar Exchange ("QE") in addition to companies soon to be listed, with a possible allocation of up to 15% in other listed companies elsewhere in the GCC region. The Investment Adviser invests using a top-down screening process combined with fundamental industry and company analysis.

QIF Quarterly Report - Q3 2016

3 months ended 30 September 2016

Highlights

Ø Qatar Investment Fund Plc's ("QIF") net asset value per share ("NAV") +5.7% vs Qatar Exchange Index ("QE") +5.6%.

Ø The Qatar market was the best performer in the GCC in the quarter.

Ø Credit rating agencies affirm Qatar outlook as Stable.

Ø Barzan Gas Project production to start in November.

Ø 2016 Qatar credit growth +5.0% to end August (public sector growth +9.2%).

Ø FTSE Russell upgraded Qatar to Secondary Emerging Markets status.

Ø 2016 Qatar population +5.5% to 2.56 million.

Performance

Please refer to the IMS on the Company's website www.qatarinvestmentfund.com/publications/quarterly-reports/ for a chart depicting the NAV per share compared to the QIF share price.

QIF's NAV net of dividends rose 5.7% during Q3 2016, while the QE rose 5.6%. After outperforming by 0.7% compared to the QE in the previous quarter, QIF's NAV outperformed by 0.1% for Q3 2016.

On 30 September 2016, the QIF share price was trading at a 13.9% discount to NAV.

Performance vs QE Index

*Net of dividends paid

Source: Bloomberg, Qatar Insurance Company

Portfolio Structure

Top 10 Holdings

The Investment Adviser increased the allocation to Barwa Real Estate as valuations started to look attractive. As a result, Barwa Real Estate replaced United Development Company in QIF's top 10 holdings. The Investment Adviser continues to reduce exposure to Gulf International Services as weak oil prices hit earnings, making valuations demanding. The holding in Ooredoo increased to 6.3% from 5.8% after the telecom company reported a hike in earnings.

Country Allocation

At 30 September 2016, QIF had 22 holdings: 17 in Qatar and 5 in UAE (Q2 2016: 23 holdings: 19 in Qatar and 4 in UAE). The Investment Adviser reduced exposure to UAE to 4.3% from 5.6%. Cash was higher at 3.5% (Q2 2016: 0.7%).

QIF added two holdings during Q3: Dubai Islamic Bank and Emirates National Bank of Dubai. QIF sold its holdings in Al Khalij Commercial Bank, National Leasing Company and First Gulf Bank.

Sector Allocation

Please refer to the IMS on the Company's website www.qatarinvestmentfund.com/publications/quarterly-reports/ for a chart depicting the overall portfolio allocation by sector as at 30 September 2016.

QIF remains overweight in the Qatar banking sector (including financial services) at 41.9% compared to a market weighting of 39.1%. Qatar National Bank remains QIF's largest holding (18.7% of the fund). In the year to end of August Qatar credit grew 5.0%, mainly driven by the public sector (up 9.2%). The Investment Adviser believes that public sector loan growth will remain strong, driven by the government's infrastructure development plans, rising population and the international expansion of Qatari banks.

Industrials remain QIF's second largest exposure at 24.9% (Q2 2016: 26.8%) mainly in Industries Qatar (10.8% of NAV). We reduced exposure to Gulf International Services to 5.6% from 6.2% in the previous quarter, while exposure to Qatar Electricity and Water reduced from 7.5% to 6.3%.

After re-entering the services and consumer goods sector in Q2, QIF increased its exposure to 2.3% from 1.8%. Exposure to the insurance sector also increased from 2.9% to 3.4%.

Regional Market

GCC markets posted mixed performances in Q3, with the Bloomberg GCC index falling 3.3%, led by a sharp drop in Saudi markets.

Dubai, Bahrain and Kuwait were up 4.9%, 2.8% and 0.6%, respectively, while the Abu Dhabi and Oman markets fell 0.5% and 0.9%, respectively. The Saudi market led the fall (down 13.5%), amid concerns of a decline in the value of net foreign assets and tightening of banking liquidity.

Qatar was the best performer in the GCC in Q3. QE rose 7.3% in July and 3.6% in August, fueled by earnings momentum and anticipation of the FTSE Russell Index upgrade to Secondary Emerging Market, which raised hopes of passive investment flows into the market. Qatar fell 5.0% in September, finishing at +5.6% for the quarter. Insurance (+13.6%), banks and the financial services (+7.8%) and telecoms (7.4%) led the quarterly increase.

The Qatari market has been relatively resilient to low oil prices compared to other GCC markets. From 30 June 2014 to 30 September 2016, when the price of a barrel of Brent oil fell 56.2%, QE declined 9.2% and was the second best performer after Abu Dhabi (down 1.6%).

The Investment Adviser expects the Qatari market to perform well over the medium to long term, driven by strong macroeconomic fundamentals, ongoing infrastructure spending, superior growth prospects in the non-hydrocarbon sector and a rising population. Furthermore, the Qatari government is committed to continuing its infrastructure investment spending programme ahead of the 2022 FIFA World Cup and in line with the Qatar National Vision 2030. Inclusion of the Qatari market in the FTSE Russell Secondary Emerging Market index should attract additional fund flows in the near term.

Please refer to the IMS on the Company's website www.qatarinvestmentfund.com/publications/quarterly-reports/ for a chart depicting the performance of markets since end of June 2014.

22 Qatar listed entities included in FTSE Secondary Emerging Index

Qatar has been upgraded to "Secondary Emerging Market" from its earlier status of "Frontier" by FTSE Russell. Qatar's inclusion in the index is to be made in two equal tranches - the first tranche took place in September 2016 and the second will happen in March 2017. A total of 22 QE listed companies were added to the FTSE Russell's secondary emerging market index in September.

The FTSE All-Emerging Index, which is a combination of secondary and advanced emerging markets indices attracts around US$ 70 billion of investment. Qatar is expected to attract passive flows of around US$ 1 billion following the upgrade.

OPEC reaches preliminary agreement to curb oil production

In its September meeting, OPEC reached a preliminary accord to limit output to a range of 32.5-33.0 million barrels per day (mbpd), a reduction of around 700,000 bpd from OPEC's current estimated output of 33.24 mbpd. The production quota for each OPEC member country will be decided at the next meeting in November, when non OPEC countries may be invited to make cuts, like Russia.

Analysts expect that Russia and Saudi Arabia will bear most of the brunt of the proposed cuts, while Iran, Libya and Nigeria could be allowed to produce at "maximum levels that make sense".

According to S&P Global Platts estimates, this production cut would lift prices by US$12 in 2017, as US producers would not be able to fill the void quickly, partly because some have too much debt and not enough cash to finance new drilling.

Some doubt that these price supporting measures are sufficient to ease the oil supply glut. Also, significant oil price upside will be countered by higher prices bringing US shale players back into business.

Qatar sees sign of easing liquidity

With oil-rich GCC countries struggling to balance their books hit by prolonged low oil prices, local and external sovereign bond issues are being used by governments as a tool to finance budget deficits, including by attracting international investors.

Lingering worldwide uncertainty is expected to push fiscal and current account deficits higher this year and in 2017. Although oil prices have recovered to an extent, the rising pressure of subsidies and entitlements have forced GCC governments to rely on the issuance of debt.

By mid-2016, GCC states had issued bonds worth US$ 263 billion, of which US$ 39 billion (15% of the total) were issued in H1 2016. GCC government issuances made up 51% of total GCC bond issuances in H1 2016. The relative size of the bond issuance highlights the strong credit ratings of the GCC issuers.

Please refer to the IMS on the Company's website www.qatarinvestmentfund.com/publications/quarterly-reports/ for a chart depicting the GCC bond market.

Qatar's banking system, similar to its GCC peers, faced liquidity concerns earlier this year. Reduced state revenues from lower natural gas prices cut flows of new petrodollars into Qatari's banking system, pushing money rates higher and resulting in cancellation of several monthly sales of short-bills. The central bank also reduced the size of its Treasury bill issuance in order to improve liquidity.

In May 2016, Qatar sold US$ 9 billion of Eurobonds to increase supply of funds in the Qatari banking system. This helped second quarter performance as the cost of borrowing eased.

Qatar Central bank (QCB) successfully issued its first QAR 4.6 billion (US$ 1.26 billion) of domestic conventional and Islamic government bonds in August, followed by a second issue of QAR 4.6 billion in September.

We therefore expect liquidity conditions to ease further, pushing money rates lower. The Investment Adviser therefore believes the near-to-medium outlook for the Qatari economy and of the banking sector to remain strong.

Qatar: H1 2016 corporate profits up marginally, excluding one-offs

Net profits of Qatari listed companies fell 10.2% during the first six months of 2016 compared to the same period last year. This drop was mainly attributed to a one-off gain of US$742.2 million (QAR 2.7 billion) reported in Q1 2015 by Barwa Real Estate. Excluding this one-off 2015 gain, H1 2016 net profits would have increased 1.0%.

Sector profitability (net profit/loss in US$000s)

* Excluding Vodafone Qatar because of 31 March year end

Source: Qatar Exchange

Profits in the banking and financial services sector rose 3.5% in H1 2016 compared with H1 2015. Growth was primarily driven by a 2.6% rise in sector income. During first six months of 2016, lending was up 4.6%, primarily in the public sector (up 9.9%). Qatar National Bank, the largest bank in Qatar, reported profit growth of 11.8% during the period. Net profit of Islamic banks rose 9.3% during H1 2016, compared to a 1.3% rise in the profits of conventional banks. The rise in the profits of conventional banks was limited by a sharp fall in the profit of Commercial Bank of Qatar (-51.2%). Qatar Islamic Bank, Masraf Al Rayan and Qatar International Islamic Bank reported profit growth of 17.9%, 5.3% and 1.1%, respectively.

Profits in the industrials sector declined 14.3% during H1. This was primarily due to a 18.9% fall in profit of Industries Qatar and a 73.5% decline in profit of Gulf International Services, caused by the fall in petrochemical and oil prices. However, Mesaieed Petrochemical Holding reported a 21.6% rise in profit in H1 2016.

Insurance sector profits fell 8.0%, with all companies reporting reduced profits, except Qatar Insurance Company, which saw profit growth of 4.3%.

Profits in the services & consumer goods sector dropped 4.6% during H1 2016 compared to H1 2015. Sector heavyweight, Qatar Fuel Company, recorded flat profits while Al Meera Consumer Goods and Zad Holdings rose 1.5% and 3.6%, respectively.

Real estate sector profits declined sharply, mainly driven by a significant drop from Barwa Real Estate (down 65.2%). The company had reported a one-off profit on the sale of properties of US$742.2 million (QAR 2.70 billion) in H1 2015. As a result, the company reported lower profit in H1 2016. Excluding this one-off gain, real estate sector profits would have been up 13.5%.

The telecom sector comprises Vodafone Qatar and Ooredoo. Vodafone Qatar is excluded since its fiscal year ends on 31 March. Ooredoo, reported a 45.8% rise in profit in H1 2016, helped by foreign exchange gains from its Indonesian and Myanmar operations.

In the transportation sector, profits declined 6.1%, as Qatar Navigation, the largest profit contributor, reported a drop of 15.1%. However, Gulf Warehousing Company and the Qatar Gas Transport Company reported a rise of 15.5% and 2.1%, respectively.

Recent Developments

International Credit rating agencies affirmed their ratings on Qatar with Stable Outlook

Credit rating agencies Fitch and S&P are positive on Qatar. Fitch Ratings affirmed Qatar's long-term foreign and local-currency IDRs at 'AA'. It also affirmed an 'AA' rating on Qatar's senior unsecured foreign currency bonds. S&P Global ratings affirmed its 'AA' long-term and 'A-1+' short-term sovereign credit ratings.

According to Fitch, 'AA' ratings reflect Qatar's large sovereign assets, its fiscal adjustment efforts, large hydrocarbon endowment and one of the world's highest GDP per capita ratio.

Projects worth over QAR 38 billion are underway

As a part of Ashghal's plan to develop the country's expressways, projects amounting to more than QAR 38 billion are progressing in Qatar. As part of its ambitious Expressway Project, construction projects worth QAR 49.8 billion have been awarded by Ashghal. As per the Annual report of Ashghal, currently 11 Expressway Projects are in different stages of construction and 10 projects are in the design phase.

Qatar to launch Barzan Gas Project in November 2016

Operations are due to start on Qatar's Barzan Gas Project, which will boost the country's gas production by up to 2 billion cubic feet per day once the full capacity is reached in 2017.

Qatar Stock Exchange commenced margin trading activity from 5th October 2016

In an effort to boost liquidity in the market and provide new financing channels for investors, the Qatar Stock Exchange (QSE) introduced margin trading from 5th October 2016. This facility is applicable for 20 stocks.

Qatar tops GCC's banking sector growth

In Q2 2016, Qatari banks outperformed GCC peers and witnessed the strongest growth in terms of total assets, net profits, net interest income and non-net interest income.

Driven by robust performance of Qatar National Bank (led by its acquisition of Finansbank) and loan book expansion of other banks, the total assets of GCC banks expanded 8.4% YoY in Q2 2016. Qatari banks witnessed the strongest growth in total assets (up 24% YoY), followed by UAE and Saudi banks (up 7.6% and 2.2%, respectively).

Profits of Qatari banks also increased most (up 3.5% YoY), followed by Kuwait (up 2.1% YoY) and Saudi Arabia (up 1.8% YoY), whereas UAE banks reported a fall in net earnings (down 3.3% YoY).

2022 FIFA World Cup Projects to be delivered on time

A senior official from the Supreme Committee for Delivery and Legacy has confirmed that all projects related to the Qatar 2022 FIFA World Cup will be delivered on time. Ali Ghanim al-Kuwari - Executive Director, further stated that work on the Qatar 2022 projects is proceeding as planned and all the projects are in an advanced stage of design and implementation. The first World Cup stadium, Khalifa International, is expected to be delivered at the beginning of 2017.

Qatar's insurance market to grow at a CAGR of 18.0% till 2020

In its annual report, Oxford Business Group estimated that Qatar's insurance market will grow at a CAGR of 17.8% till 2020, making it the fastest-growing insurance market in the GCC region.

Qatargas signed an agreement to supply 1.3 mtpa of LNG to Pakistan for 20 years

Qatargas, the world's largest producer of LNG, signed a 20 year sale and purchase agreement with Global Energy Infrastructure Limited (GEIL) to supply 1.3 mtpa of LNG to Pakistan, with provision for the volume to increase to 2.3 mtpa.

Qatar named among the top 20 best performing economies in the world

Qatar is ranked 2nd in the Gulf region and 18th globally in the World Economic Forum's Global Competitiveness Index 2016-17. Although it slipped from its top position in the GCC region, it topped the region in efficiency in many areas such as macroeconomic environment, financial market development, innovation, health and primary education, and higher education and training.

Qatar's PM to ease work visa procedures in order boost private sector

The Prime Minister of Qatar promised to develop the legislative framework and simplify procedures in order to improve the ease of doing business and investing in Qatar. The government will also simplify the process of obtaining working visas.

Macroeconomic Update

According to the Ministry of Development Planning and Statistics (MDPS), the Qatari economy continued to grow in Q1 2016, with GDP rising 1.1% compared to Q1 2015. The non-hydrocarbon sector GDP grew 5.5%, mainly driven by expansion in electricity, construction, transportation, and financial services. The hydrocarbon sector GDP shrank 3.0% due to lower oil prices.

Going forward, the Investment Adviser believes that Qatar's real GDP growth will continue, driven by strong growth in the non-hydrocarbon sector, as investment spending remains strong. Amid lower oil prices, MDPS expects Qatar to remain the fastest growing economy in the MENA region in 2016 and 2017, growing by 3.9% and 3.8%. Moreover, the Barzan gas project should help in raising hydrocarbon output once it is fully operational in 2017.

Qatar's population grew 5.5% between December 2015 and September 2016, to reach 2.56 million. Population growth is expected to remain strong in coming years, as large projects related to the 2022 FIFA World Cup continue to attract expatriates. A growing population and a high level of personal consumption is expected to continue to encourage domestic consumer and services sector companies.

Valuations

Source: Bloomberg, Prices as of 02 October 2016

Outlook

The Investment Adviser believes that Qatar is well positioned for continued growth as macroeconomic fundamentals remain strong. Despite the fall in hydrocarbon revenues, the Qatari government is committed to planned major infrastructural projects in line with the Qatar National Vision 2030. Long term LNG contracts, Qatar's fiscal buffers and sizeable assets should help it maintain its position as one of the fastest growing economies in the GCC region.

Ongoing high investment spending will continue to underpin Qatar's non-hydrocarbon sector growth, coupled with output gains in the hydrocarbon sector from the Barzan gas facility to be launched in November.

Banking sector credit growth is likely to be attractive on the back of higher consumer lending and project financing activities. The Investment Adviser believes that for these reasons, the Qatari economy and the Qatari stock market is likely to remain attractive to investors.