Utilities and telecom are the least affected sectors in Qatar in the COVID-19 pandemic impact. Consumer and health sectors were barely affected, according to KPMG.
KPMG, in its report ‘COVID-19: Valuations in the current environment named energy, financials and industrials sectors as the most impacted sectors. While low oil prices coupled with a prospect of low energy demand impacted the energy sector, the deferring of payments by businesses and individuals may potentially lead up to NPAs impacting the financial sector. The Industrials sector must deal with global supply chain disruptions along with volatile demand, KPMG analysts said.
On consumer sector, the KPMG experts noted the sector is facing a mixed response as e-commerce picking up but the traditional way of retail shopping getting impacted. Logistics and supply chain issues to be sorted out in the short run.
Global attempts to limit the spread of the COVID-19 novel coronavirus come with unprecedented social and community dislocation. An extended period of economic downturn and profound disruption to established business and financial systems is likely. More immediately, for investors, is the challenge of finalising or revisiting carrying values for their investments as at 31 March 2020, the KPMG report said.
‘At KPMG, we believe any adjustment to value should be assessed on an individual investment basis. To help you set or revisit your carrying values as at 31 March 2020, we have identified the top considerations for assessing the extent of the value impact on individual assets, as well as the implications for equity returns, Venkatesh Krishnaswamy, Partner, Head of Advisory, KPMG in Qatar said.
‘We expect a potential two-to-four month broad ‘lock down by the governments to arrest the spread of COVID-19. We are already seeing China starting to re-engage its factories, two months after its initial lock-down measures. From that point, there will be a period in which to return to previous activity levels or, in some sectors, to establish a new normal. The shape of this return, whether an optimistic ‘V shape; a more realistic ‘U shape or a more concerning ‘L shape, will be a major contributor to the overall value impact on investments. It will also influence the timing of recovery in the equity markets in general, he said.
The success of global governments’ stimulus measures, designed to support industries and individuals in negotiating the downturn, will contribute to the speed of recovery. In Qatar, the government has announced a QR5bn ($20.5bn) stimulus package to the private sector. However, though these measures may soften the immediate impact, the cost of funding them is likely to create a prolonged and longer-term drag on economic performance.
KPMG urged investors who do not participate ordinarily in quarterly valuation cycles to take a more frequent approach to valuations during this period. It also advised all investors to initiate reforecasting and valuation processes earlier than usual.
Impairment assessments will come under scrutiny in forthcoming audit processes. Evidence that the underlying financial information is prepared on a reasonable and supportable basis will be critical. Auditors will expect investors to demonstrate an appropriate balance of risk assessment between the discount rate and cash flows.
KPMG analysts noted that equity markets have declined substantially from their peaks in early 2020. Commenting on Qatari market, they said: ‘Between 1 January 2017 and 31 December 2017, Qatar Exchange Index declined by 18.3 percent due to the geopolitical situation in the region. Subsequently, the Qatar Exchange Index recovered and increased by 20.8 percent in 2018 and 1.2 percent in 2019. As at 31 March 2020, Qatar Exchange Index has declined by 21.3 percent since 1 January 2020. For this reason, the need for adjustments based on a short period of market volatility shall be considered.