The GCC outlook for second half of the 2013 will remain positive, thanks to the positive momentum started in first half of the year, according to Kuwait Financial Centre (Markaz) forecast for H2 13.
“Sustained high oil prices, expansive fiscal and accommodative monetary policies led to a strong rally in the first half of 2013, with all GCC markets ending in green. The much awaited decision from MSCI came in June, wherein UAE and Qatar were upgraded to emerging market status. Saudi Arabia is expected to take cues and allow for foreign investor participation albeit in a regulated manner. Going forward, political transitions in Qatar and Kuwait could delay implementation of key reforms,” the report added.
“In our previous note in January, we adopted a Neutral view of the markets mainly due to lackluster earnings expectation which overshadowed improving market liquidity. We had adopted a positive stance in the case of UAE and Oman due to attractive valuations whose downside is capped by high dividend yields (over 4%). We also expected earnings to grow by 40% (yoy) and liquidity to improve in the case of UAE,” Markaz in a report said.
UAE turned out to be one of the best performing equity markets in 1H 2013; the rally was driven in part by speculation of inclusion into MSCI Emerging market index and owing to a good set of numbers from banking sector. Real estate sector earnings were disappointing though. On a surprising note, Bahrain aggregate earnings surged by 41% led majorly by Banking sector in 1Q13 (yoy basis).
The first half of 2013 saw all the GCC markets reacting positively due to increase in oil prices, the resulting fiscal surpluses and infrastructure expenditures, strong comeback of the real estate market, and improvement in tourism sector.
The GCC countries continued to invest heavily in the non-hydrocarbon sectors in a bid to diversify their economies. Construction and transport sector contracts worth ov$39 billion have been awarded for projects in the GCC, in the first half of 2013. Surge in lending and strong economic performance in hydrocarbon producing GCC countries led to record performance in the Banking sector, in the first half of the year. S&P revised its outlook on Bahrain from negative to stable and on Saudi Arabia from stable to positive.
The highlight of the first half of the year was the long expected MSCI upgrade of UAE and Qatar to Emerging Market status. The move is likely to take effect in Q2 of 2014, with UAE accounting for 0.4 percent of the index and Qatar accounting for 0.45 percent.
While the European markets remained bleak, there are indications that the downturn appears to be moderating, with the slowest fall seen in the month of June in more than a year. US markets staged a comeback in the first half of the year with S&P 500 Index gaining 12.6%. Increasing consumer confidence and encouraging economic data prompted the Federal Reserve to announce a gradual tapering of quantitative easing.
At the beginning of 2013, we stated that the bleak global outlook will lead to a sluggish demand for oil. Brent Crude lost 8% in the first half of the year, due to slowdown in emerging markets and uncertainty in developed markets. World oil demand growth for 2013 has been revised down to 0.8 million barrels per day.
All the GCC markets gained amply in the first half of 2013. GCC heavyweight Saudi Arabia ended the first half with a 10.2% gain in the Tadawul index. Qatar, Oman and Bahrain recorded healthy gains in the range of 10% to 12% in 1H13. Abu Dhabi (+36.9%) and Dubai (+40.7%) markets posted the highest gains this half, due to improvements in corporate profitability.
“Just to recap, the UAE markets ended 2012 with double-digit positive stock market returns (Abu Dhabi +10% & Dubai +21%), the highest in the GCC. Its economy grew at a modest 4%, corporate earnings rose 25%, and stock market liquidity was up 25%. In 1H13, the UAE corporate earnings grew 7% YoY and market liquidity was up 111% YoY,” Markaz in a report added.