Qatar's gross domestic product will grow by 18.5 percent this year as gas exports increase, leaving the economy at risk of overheating in the medium term, the International Monetary Fund said.

The Persian Gulf country should have "positive" economic prospects in the medium term, with continuing strong growth, moderate inflation and a fiscal and current account surplus in 2010, the Washington-based lender said in a e-mailed report late yesterday. Inflation is forecast at 1 percent this year.

Rapid growth has 'the potential of overheating the economy unless the government continues to prioritize and sequence its spending toward infrastructure spending," the Fund said.
Infrastructure projects should be phased in to avoid supply bottlenecks that could drive up inflation, it said.

Qatar, the world's biggest producer of liquefied natural gas, is benefiting from higher oil and gas prices this year. The country is spending $100 billion on projects to build up its infrastructure and raise its annual LNG export capacity to 77 million tons this year from 54 million.

Eoin Treacy's view 18.5% growth rates are pretty thin on the ground but Qatar is a relatively special case since it holds such a dominant position in the booming LNG industry and is coming from a low base. However, the industry is state owned and the stock market is dominated more by banks than energy companies. The DSM Index bottomed in March last year rallied to 7000 around which is has been ranging since July. A sustained move below 6000 would be required to question scope for continued higher to lateral ranging.

An important factor to consider with relatively small illiquid markets is that a few well capitalised funds can quickly dominate such a market. When weight of money hits tight liquidity in an economy ill suited to absorb such flows asset prices can jump quickly and often move to previously unimagined heights. The opposite is also true, because as large investors begin to take profits there are few other investors able to take up the slack by replacing lost demand. These factors mean that with such markets investors need to anticipate tops because if one waits for confirmation one's ability to sell could be constrained by the lack of liquidity. If one is considering staying with such markets beyond relatively short-term trends then improving standards of governance are also an important consideration which needs to be monitored.

Eastern Europe's smaller markets have begun to show signs of renewed investor interest in the region and some such as Estonia and Ukraine are leading the group higher. (Also see Comment of the Day on February 10th). Investor interest is also beginning to return to the Middle East and Africa.

Israel and South Africa have been among the better performing regional markets but also have large capitalisations and are less influenced by small numbers of large investors.

Tunisia (5yr, 10yr, log-scale) on the other hand has been one of the world's best performing indices over the last decade and remains in a consistent albeit somewhat overextended uptrend. The Index has found support in the region of the 200-day moving average on a number of occasions and appears due for another reversionary move. However, in the short-term, a downward dynamic would be required to check momentum beyond a brief pause. (Also see Comment of the Day on March 17th). The Tunisian market is dominated by the Banks sector (approximately 60%) which makes it susceptible to a problem in that sector. However, the chart action does not suggest any particular issue with the sector right now.

Lebanon, Morocco, Botswana and Mauritius have all experienced relatively shallow corrections compared to other Middle Eastern and African markets and remain among the better subsequent performers.

Egypt, Qatar, Oman and Kenya are all in varying stages of medium-term uptrends and would need to sustain moves below their 200-day moving averages to question scope for additional higher to lateral ranging.

Saudi Arabia, Kuwait, the UAE, Dubai, Abu Dhabi, Ghana and Nigeria remain in developing base formations while both Bahrain and Jordan have yet to conclusively bottom.

The PME African Infrastructure Opportunities Fund remains in a consistent uptrend, defined by the progression of higher reaction lows and would need to sustained move below 0.65 to question the consistency of the advance.

The Market Vectors Africa Index ETF continues to range below $30 but a sustained move below the recent reaction low near $27 would be required to question potential for an eventual reassertion of the medium-term uptrend.

The T.Rowe Price Middle East and Africa fund lost momentum from October but has sustained the progression of higher reaction lows and a sustained move below $6.75 would be required to question continued scope for further higher to lateral ranging.