Macro fundamentals in GCC remain strong

Iconic Burj Khalifa UAE
Sturdy fundamentals in the GCC and recent gains by stock markets amid higher than expected trading volumes during the holy month of Ramadan bode well for the region’s markets, Invest AD in its latest markets outlook Middle East and Africa markets bulletin, said.

The rally has been partly driven by a global risk-on environment linked to expectations of further monetary easing in Europe and the United States. But macro fundamentals in the region remain strong, with consumer spending robust during Ramadan and Saudi Arabian banks showing decent loan growth in a strong set of second-quarter earnings results.
Saudi petrochemical stocks have also seen a slight bounce, with investors starting to take the view that the global economic slowdown and chemical price slump has been fully priced in.

In the UAE, Dubai has seen a surge in tourism and has made progress in restructuring and refinancing debt, which is contributing to a general improvement in investor sentiment. However, loan growth still remains sluggish, typically at under five percent, suggesting that the broad economy is only slowly recovering from the 2008-2009 crises. Investors are looking to bank stocks for an increase in dividend pay-outs rather than strong capital gain.

Despite the recent upbeat mood, the markets remain fragile, with investors still nervous over the health of the global economy, the euro zone sovereign debt crisis, and geopolitical risk related to Syria and Iran.

The Egyptian market rallied in August, with foreign investors back in the fray, as a visit by IMF head Christine Lagarde prompted speculation that the multilateral lender would grant Egypt its requested $4.8 billion loan. With Qatar also disbursing a $500 million, fears of imminent currency devaluation have receded.

President Morsi’s move to remove the military’s top brass, solidifying his grip on power, was also greeted positively by investors, although his choices for the government’s new cabinet generally failed to impress political observers.

Egypt’s banks reported decent, but far from exciting, second-quarter results, with average loan growth in the sector up nearly 7 percent from a year earlier.

In Tunisia, the government is making progress in offloading some of its assets in an effort to cut its budget deficit and bring back investor confidence. The most notable case is the proposed sale of a 25 percent stake in mobile telecoms firm Tunisiana through a formal tender process that could raise around $600 million when it completes in November.

Meanwhile in Morocco, the economic slowdown caused by falling commodity prices and a drop in European demand for the country’s exports, is hitting listed companies hard, especially industrial names such as paint firm Colorado and steel manufacturer Somasteel. With the country’s external position suffering, the IMF has approved a $6.2 billion credit line. While this demonstrates how fragile the economy has become, the move has also served to reassure investors that the country is backed by a safety net.

Investor hopes are mounting that Iraq’s three telecoms firms will finally launch IPOs – as required by their concession agreement. Asiacell’s listing, expected by the end of the year, should give the Iraqi stock exchange a boost, with the relatively large-cap stock hopefully bringing much needed liquidity. Encouraging signs are still emanating from the banking sector with Iraq’s main banks posting impressive loan and profit growth. For example, North Bank’s deposits grew 45 percent in the first half of 2012 to reach $775 million, attracting customers with a deposit rate of seven percent. This encouraged the bank to increase loans by 27 percent in the first six months of this year. Historically, about 80 percent of the new loans went to companies, with the remainder went to personal and car loans.

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