The Qatar Financial Markets Authority (QFMA) will soon come out with the procedures and the appropriate mechanisms to regulate the stock split of the listed companies, a move that could lead to better price discovery.
The QFMA has outlined the scheme of splitting shares’ nominal value of the Qatar Stock Exchange-listed companies to QR1 per share (from the present face value of QR10), a move that is set to appeal small investors and enhance liquidity.
This step, which comes as a part of the QFMA’s regulatory and supervisory role over the capital market in the State, seeks to increase the prospects for investment in the financial market, expand the shareholders base, attract more small investors, give more choice opportunities for all participants dealing in the QSE, and increase the liquidity and turnover ratio of shares listed on the market.
Lower price will attract more day traders and smaller investors, which in turn enhance liquidity, thereby further improving the price and valuation.
The QFMA is exerting more efforts to achieve its mission that aims to regulate and develop the capital market in line with the QFMA’s strategic plan, which is in harmony with the financial sector plan in the country.
The empirical studies in corporate finance indicate that the stock split is positive and indicates positive future performance, market sources said.
“The proposed move will have an impact on the minds of average investors, who otherwise are waiting in the fringes,” an analyst with a leading bank brokerage house said.
Stock split will see shares with lower face value but total market capitalisation of the stock post-split remains the same.
“The stock split will gauge the right intrinsic value as more float will help market forces to determine true price,” an analyst with a leading Shariah-principled brokerage said, adding investors should also look at the fundamentals.
In June last year, Qatar Insurance Company, a dominant player in the industry, had said it was considering a 1:10 stock split.
The QSE has already undertaken various measures to enhance the liquidity and the liquidity providers are already there in the market. Moreover, following the Amiri Decree, many companies have allowed a higher up to 49% foreign ownership limit.
The move (by QFMA to split stocks) also comes in the wake of two exchange traded funds (sponsored by Doha Bank and Masraf Al Rayan), which have been well received by the investors.
Lower price is seen attracting more day traders and smaller investors to the QSE, which will enhance liquidity, further improving the price and valuation. PICTURE: Noushad Thekkayil
