A report prepared by KAMCO Research that analyzes the performance of the 7 GCC Equity Markets during August 2010 in addition to assessing the latest key economic and market developments and their effect on the performance of each stock market.
— Editor

The lack of market catalysts during this month, declining oil prices, weak global economic cues and concerns over a sustained global economic recovery along with renewed winds of global risk aversion promoted weakness in the majority of GCC equity markets which ended the month of August on a mixed note as 4 out of 7 bourses have shown losses over the period. This has come on the back of lower than expected 1H-10 earnings of the heavy weight GCC Banking Sector which came in at USD 8.8 bn down from USD 9.2 bn reported in 1H-09. Credit growth in the GCC region, especially for the private sector, remains sluggish compared to unprecedented levels witnessed in the pre-crisis period triggered by the concerns of high credit risk which forced banks to book high provisions that curbed growth in profitability and led to deterioration in asset quality.

The month of August witnessed the end of earnings season for 1H-10 with 90 percent of GCC listed companies reporting their 1H-10 financial results showing a significant increase over 1H-09 profits; thus injecting a more optimistic view into the economic and market outlook. Aggregate profit has reached USD 25.4 bn up from USD 19.7 bn representing a 29 percent increase over 1H-09. All markets, except for Abu Dhabi, have shown an improvement in earnings with the KSE topping the list with a whopping 161 percent increase in earnings followed by TADAWUL and DFM showing advances of 40 percent and 15.8 percent, respectively. In addition, the Kuwaiti bourse was the best performer during August with a monthly gain of 3.96 percent in its Weighted Index and hence extending its YTD gains to top the region with a return of 13 percent; followed by Qatar Exchange which gained 2.8 percent, while the Tadawul All Share Index was the regionís worst performer with a monthly drop of 2.82 percent. MSM 30 Index declined by 0.6 percent, extending its YTD losses to 1.76 percent, while DFM and ADX remained the worst performers since the beginning of the year triggered by losses reported during August. On YTD basis, DFM and ADX are still in the negative territory with sharp losses of 17.7 percent and 8.9 percent, respectively.

Dragged down by the heavy losses incurred by the Saudi market, the largest market in the GCC region; the combined market capitalization of the 7 GCC bourses declined by 0.79 percent or USD 5.6 bn to record USD 698.4 bn. The Saudi market, which accounts for around 46 percent of the aggregate market cap of the GCC bourses, lost around USD 7.6 bn while the Kuwaiti bourse, the second largest stock market, advanced by USD 4.18 bn over the same month. Stock markets in Dubai and Abu Dhabi together lost USD 2.77 bn on the back of low risk appetite, sluggish economic growth, lack of local market catalysts and yet another delay in reaching an agreement with Dubai world creditors.
The GCC region is currently experiencing a foreign investment boom reminiscent of the first oil boom as gulf countries are starting to realize the benefits of capital to their economies. Furthermore, Saudi Arabia and the UAE received about 78 percent of the total USD 50.9 bn foreign direct investments attracted by the region during 2009, according to United Nations Conference on Trade and Development (UNCTAD). While Saudi Arabia remained the largest Arab destination for FDI, attracting nearly USD 35.5 bn, Qatarís share stood at USD 8.7 bn, making it second top investment recipient in the region and taking over the significant FDI destination status that the UAE has maintained over the past decade.

Saudi Stock Exchange (TADAWUL)
In Saudi Arabia, Tadawul All Share Index (TASI) bucked its previous month upward trend to shed 2.82 percent and close at 6,106.42, thereby ending as the worst performer amongst its peers in the GCC region. The petrochemical sector witnessed its market cap drop 2.90 percent mainly on the back of declining oil prices and speculations that a weak global economic recovery will curb energy demand growth. The market heavyweight banking sector witnessed its market cap drop 2.11 percent, weighing further on the performance of the market during the month. In other developments during the month, the International Monetary Fund (IMF) in a report stated that the outlook for the Kingdomís economy is positive as it confronted the global financial crisis handily; noting that the Gross Domestic Product (GDP) not related to oil will likely grow by 4.5 percent in 2010. Total market capitalization shed 2.32 percent as compared to the previous month to SAR 1.20 trillion (USD 321 bn). On an YTD-10 basis, losses incurred during the month pushed the TASI to erase its year-to-July return of 2.65 percent and post a YTD loss of 0.25 percent.

Kuwait Stock Exchange
In Kuwait, the Governmentís decisions to finance its KD 30 bn development plan through local banks and its readiness to back the same with guarantees boosted investorsí sentiment and shaped the market performance during August. As a result, the KSE Weighted Index and KAMCO TRW Index continued its previous month upward trend to gain 3.96 percent and 2.83 percent respectively. Gains recorded during the month enabled the Kuwait Stock Exchange to end as the best performing market amongst its GCC peers for the second consecutive month. The market heavyweight Banking sector shaped the performance of the market for the month as it witnessed its market cap gain 9.9 percent to KD 12.95 bn. Total market capitalization during the month gained 3.7 percent to KD 33.2 bn. On the corporate earnings front, 178 out of 201 listed companies with fiscal year ending December announced their 1H-10 financial results; the aggregate net profit announced so far stood at KD 1.35 bn, as compared with a net profit of KD 531.5 mn for 1H-09. Gains reported during the month pushed the KSE Weighted Index and KAMCO TRW Index YTD-10 gains to jump to 13 percent and 9 percent, respectively.

Dubai Financial Market
In Dubai, triggered by weak global cues and concerns over global economic recovery, lack of local market catalysts, lower than expected 1H-10 earning, downgrades in the banking sector and yet another delay in reaching an agreement with Dubai World (DW) creditors, the DFM General Index has ended the month on a negative note losing 1.90 percent to close at 1,483.67 below the physiological barrier of 1,500 points. Furthermore, foreign and institutional investors remained net buyers on the Dubai Financial Market during the month while GCC and UAE nationals were by far net sellers, indicating varying risk perceptions in a depressed market. Foreign investors bought shares worth AED 779.2 mn, comprising 52.3 percent of the total value of stocks traded during the month, according to trading statistics for August released by DFM website. The value of stocks sold by foreign investors rose to AED 728.8 mn, comprising 49 percent of the total value of stocks on the bourse, thus showing a net investment inflow of AED 50.4 mn. On the economic front, the UAE economy is perceived to be performing worst than other GCC economies during 2010 with the International Monetary Fund forecasting Real GDP growth of 1.3 percent and 3.1 percent during 2010 and 2011, respectively in comparison with growth rates of 4.9 percent and 5.2 percent for the GCC region.

Abu Dhabi Securities Exchange
In Abu Dhabi, the ADX General Index ended the month on a negative note after declining 1.86 percent to 2,498.52 points, thus causing the Index to extend its YTD-10 losses to 8.93 percent. Investor confidence throughout the month remained weak as a lack of catalysts at a local and global level failed to push the Index upward and investors continue to remain cautious about the pace of global economic recovery. Oil prices also registered a modest decline, thus further weighing down on sentiment as oil prices continued to be driven by macroeconomic sentiment. The Emirateís release of 2009 GDP figures indicated that GDP dropped 18 percent to AED 546.5 bn compared to AED 666.7 bn in 2008. The notable drop in 2009 GDP reveals how macroeconomic indicators in Abu Dhabi are highly influenced by changes in the demand and prices of oil. In tandem with the lackluster market performance, property developers continued to weigh down on the Indexís performance, thus the ADX General Index dropped to a 2010 low of 2,471.7 points.

Qatar Exchange
In Qatar, the QE 20 Index maintained its upward trend throughout the month to end on a green note after gaining 2.80 percent to close at 7,226.15 thus enabling the Index to end as the second best performing market for the month against its GCC peers. In line with the positive performance, the Index extended its YTD-10 gains to 3.84 percent. The upward trend witnessed during the month was supported by increased institutional buying support as investor sentiment remained upbeat and was further strengthened with the 10.3 percent increase recorded in aggregate net profit amongst listed firms for the first half of 2010, which came in at QAR 14.89 bn compared to QAR 13.51 bn during the comparable period of last year. Accordingly, the QE 20 Index registered a three month high of 7,200 points on the 24th of Aug-10 on the back of increased foreign investor appetite for Qatari blue chip industrial and banking stocks. Trading indicators also rose throughout the month as trading volume increased by 15.11 percent to reach 94.1 mn shares valued at QAR 3.2 bn.

Bahrain Stock Exchange
In Bahrain, the Stock Exchange snapped a three month losing streak after posting gains following Kuwait Stock Exchange and Qatar Exchange. The Bahrain All Share index advanced by 1.77 percent during the month to close at 1,418.61 points and minimize its year-to-date losses to 2.72 percent down from 4.41 percent recorded during the first seven months. Trading indicators also increased in the BSE as the number of shares exchanging hands totaled 38.53 mn shares, a rise of 66 percent from the previous month; spread over 1,306 deals with a total value traded of BHD 7.43 mn. The market rebounded from its lowest 2010 closing of 1,361.19 points on July 4, to reach the highest level witnessed since May-10 at 1,434.25 points after the Bahrain All Share Index was able to register consecutive weekly gains throughout the month of August supported by market heavyweight banking and investment sectors. Despite the downgrades witnessed for Bahrain and local banks, the Benchmark was buoyed for further increases. Moreover, Moodyís Investors Service downgraded Bahrainís sovereign ratings to ëA3í from ëA2í with a ëStableí outlook after stating that higher oil prices, approximately USD 80 per barrel according to Moodyís estimates, were required for the government to balance its budget.

Muscat Securities Market
In Oman, sell offs in global equity markets coupled with the fall in oil prices weighed on investor sentiments as the MSM 30 Index bucked its previous month positive trend to fall 0.60 percent and close at 6,256.81 points. Losses incurred during the month extended the MSM 30 Index YTD-10 losses to 1.76 percent. On the corporate earnings front, 54 out of 61 listed companies announced their 1H-10 earnings; aggregate earnings rose 4.0 percent to OMR 275.14 mn from OMR 264.64 mn reported during 1H-09. Total market capitalization shed OMR 8.87 mn (USD 23.04 mn) to end the month at OMR 6.19 bn (USD 16.09 bn), slipping 0.14 percent by the end of August as compared to OMR 6.20 bn (USD 16.10 bn) in July-10.