Kuwait poised to outpace peers in 2012

Global economic growth continues to decelerate, taking its toll on investor sentiment and dragging on the performance of global and regional markets. The outlook for world growth, developments in Europe, global central bank policy, fiscal consolidation plans, shifting sovereign credit ratings and political change are the key themes driving equity markets. Investors continue to focus on the fiscal cliff, which could have significant implications on economic growth. Nevertheless, the slow progress being witnessed in Europe is likely to be interrupted by periods of extreme uncertainty and swinging market confidence. GCC equity markets have fare relatively well in these conditions, while their performance in November has been mixed with 2 bourses gaining and 5 losing on.


During November, the combined market capitalization of the 7 GCC equity markets shed $8.7 bn driven by the losses incurred by TADAWUL and Qatar Exchange which mounted to $10.3 bn and $2.3 bn, respectively. Since the beginning of the year and until 20 December, the GCC bourses advanced by $47 bn to $766 bn as TADAWUL remains the main driver of the markets by advancing $38 bn in its market cap to $377 bn along with the $7.5 bn increase in Abu Dhabi Bourse market cap to record $78 bn. Even throughout the recent period of political uncertainty in the MENA region, GCC states continue to show resilience and deliver strong and sustainable growth in their economies supported by robust oil prices, government backup of key economic sectors and the attractive investment opportunities driven by the favourable demographic profile and solid stocks that reached to attractive levels along with steady growth in corporate earnings.


GCC countries will continue to post healthy growth rates in real GDP in 2012 and 2013 on the back of high oil prices and expansionary fiscal policy measures. Following a strong performance in 2011 of 7.50%, real GDP of GCC states is forecasted to decelerate in 2012 to grow at 5.5% and 3.7% in 2013. Strong oil prices remain the main driver of GCC economies along with govt spending on productive and infrastructure projects. In 2013, however, all the GCC states are expected to witness a slowdown in real GDP growth rates with the exception of Bahrain.
The price of oil is expected to remain above $100/b in 2012-2013. As a result, the oil exporters’ combined current account surplus is anticipated to remain near its historic high of about $400 bn in 2012. However, a global economic deceleration can severely impact oil prices to the downside on weaker demand leading to slower economic growth. Although many countries have the buffers to withstand short-run oil price volatility, a sustained drop in oil prices resulting from a further slowdown in global economic activity remains a key risk.

Growth
The Kuwaiti economy is forecasted to post the highest real growth rate in the GCC region during 2012 at 6.35% fuelled by robust oil prices and government spending followed by Qatar at 6.29%. However in 2013, Qatar will continue to lead the region with a growth rate of 4.9% in real GDP followed by the region’s largest economy, Saudi Arabia, at 4.2%.
In the medium to long term (2013-2017), the GCC region is expected to post solid growth rates as governments attempt to diversify their economies away from hydrocarbon. Qatar is expected to post an average growth rate of 6% over 2013-2017 while Kuwait, Saudi Arabia and UAE real GDP is forecasted to grow at average rates of 3.4%, 4.1% and 3.2%, respectively.
The GCC countries combined nominal GDP is estimated to hit $1.48 trillion in 2012 and grow further by 3.3% to $1.53 trillion in 2013 driven by robust oil prices and government deployment of massive fiscal surpluses to develop non-hydrocarbon sectors. Saudi Arabia remains the region’s largest economy with nominal GDP forecasted to reach $657 bn and $682.6 bn in 2012 and 2013, respectively. Meanwhile, the UAE remains the second largest economy with a nominal GDP forecasted to reach $361.9 bn and $374.9 bn in 2012 and 2013, respectively. Qatar Nominal GDP is forecasted to grow at 6.4% in 2012 to $184.6 bn while Kuwait GDP is forecasted to grow at 8.45% to $174.6 bn (the 4th largest economy in the GCC region).

Kuwait’s nominal GDP is forecasted to grow at 8.45% in 2012 to reach $174.6 bn (the 4th largest economy in the GCC region) and then to $175.2 bn in 2013. It’s also expected to continue posting healthy growth rates in the medium-to-long term (2014-2017). Historically, the Oil sector has made up the largest component of Kuwait GDP, averaging 54% over the period from 2005-2011.
Kuwait public finance is heavily dependent on oil revenues, making up 94.5% of total revenues for FY-11/12 at a record high of KD 28.57 bn ($101 bn). This exposes the gov’t spending on productive sectors to the risk of volatile oil prices. Oil Revenue had been volatile over the last 7 years driven by the imbalance in the oil market along with global economic sentiment. Diversification to increase non-hydrocarbon revenue is essential and will be the country’s focus in the medium to long-term.

In Saudi Arabia, diminishing risk appetite, coupled with geopolitical tension in the Middle East and uncertainty in the global economy were all factors that shaped market movements during the month of November. In addition, concerns over the King’s health added more downside pressure to the Saudi bourse taking it to a 10 month low. The TASI extended its decline for the third consecutive month in November, falling 3.8% to 6,791.04 and ended as the worst performing market in the GCC region while narrowing its YTD-12 gains to 1.8%. In line with the drop in performance, TADAWUL market capitalization shed 2.81% to SAR 1.32 trillion ($354.9 bn) as compared to SAR 1.37 trillion ($365.2 bn) recorded at the end of October-12, as all sectors in the market fell with the exception of the multi-investment sector which added 9.15% to SAR 68.9 bn ($18.4 bn) from SAR 63.1 bn ($16.8 bn). Market heavyweight Petrochemical Industries lost 2.72% of its market cap to reach SAR 422.3 bn ($112.6 bn) while the Banks and Financial sector was down 3.26% to SAR 302.5 bn ($80.7 bn). Liquidity indicators were mixed during the month with volume traded increasing 5.7% to 3.4 bn shares distributed over 2.4 mn transactions while value traded slumped 28.3% to SAR 98.7 bn from SAR 137.8 bn in October-12.

Deadlock

While in Kuwait, easing of the political deadlock coupled with better than expected 9M-12 corporate earnings, helped the Kuwaiti bourse to rebound from an 8 year low in October and end near a fresh 6 week high. Although volume was thin during the month ahead of the Dec 1 parliament elections, investors risk appetite replenished on speculations that improvement in the economy will be evident after comments by His Highness the Amir gave hope that postponed economic development projects that were put on hold will resume. By the end of November, the KSE Price Index gained 3.07% to close at 5,943.94 and end as the best performing market in the GCC region. Accordingly, the KSE Weighted Index jumped 4.18% to 423.89 points, while the KAMCO TRW Index was up 2.7%, to close at 2,672.84 points, widening its YTD-12 gain to 3.39% from 0.67% gain in October-12. During the month of November 2012, the market capitalization of Kuwait Stock Exchange increased 4.29% or around KD 1.2 bn ($4.3 bn) to record KD 29.4 billion ($104.2 bn) at the end of the month, supported by heavyweight Banking and Telecom sectors which added KD 417 mn ($1.5 bn) and KD 481 mn ($1.7 bn), respectively. Compared to October-12, trading indicators ended the month to the upside with volume traded increasing 5.8% to 7.2 bn shares from 6.8 bn shares in October-12; while value traded rose 14.7% to KD 600 mn up from KD 520 mn in October-12.

As for Abu Dhabi, the Abu Dhabi Securities Exchange as measured by ADX General Index recorded a marginal increase of 0.08% to close the month of November at 2,674.56 marking six consecutive months of gains on the back of positive 9M-12 earnings, healthy oil prices, and improved investor sentiment towards the local economy. Liquidity was mixed as volume increased 20% to 1.46 bn shares while value dropped 6% AED 1.7 bn ($461 mn). Total market capitalization decreased 0.19% to AED 293.57 bn ($79.93 bn) in November on the back of a drop in the investment & financial, real estate and the banking sectors. The ADX General Index’s YTD-12 return stands at 11.33% as the bourse has recovered from last year’s slump with the local economy showing resilience and growth, while the government has managed successfully with well-studied interventions and reforms helping revive business activity.

In Dubai, the DFM General Index declined 0.72%, breaking a four month period of consecutive gains, and narrowing its YTD-12 returns to 18.81%. The market’s performance represents a correction to gains in recent months that were supported by the improving economic fundamentals in the country as Dubai continues to shake off the effects of the 2009 debt crisis. Business activity continues to pick up in the Emirate due to the successful restructuring of debt-strapped government related entities, along with a recovery in the real estate market and an increase in foreign direct investment and non-oil exports. Furthermore, corporate earnings released so far reveal continued growth in earnings. The bourse’s return was supported by gains in the telecommunication sector increasing 3.3%, while the investment & financial dropping 2.26%. Total market capitalization gained 0.27% to AED 175.73 bn ($47.85 bn) from last month’s AED 175.26 bn ($47.72 bn). Liquidity plummeted during the month, volume and value decreased 33% and 28%, respectively, to 1.96 bn shares and AED 2.25 bn.
In Qatar, The Qatar Exchange declined as it was dragged down by institutional profit-booking to end a four-month gaining streak. The QE 20 Index shed 1.71% as the bourse’s YTD-12 return dropped further to a loss of 4.31%.

Market performance was weighed down by declines in the heavyweight Banking and Industrial sectors which dropped 1.93% and 0.82%, respectively, to QAR 180.85 billion and QAR 122.32 billion. Market capitalization for the month decreased 1.24% as all sectors except the Transport recorded declines. Liquidity registered a third month of steep declines as volume decreased 38% to 60.6 mn shares, while value traded decreased 21% to QAR 2.94 bn spread over 45,239 transactions. Negative sentiment dominated Qatar Exchange performance during the month with only 6 stocks out of 42 listed stocks witnessing marginal increase in share price led by Gulf Warehousing Co. with a monthly advance of 2.38%. Drop in heavy weight stocks pressured the benchmark to the downside with Qatar National Bank decreasing by 2.46% to close the month at QAR 130.6. QE return since the beginning of the year has not been reflecting the bright economic status and the healthy economic growth in the country along with strong corporate earnings and attractive valuation multiples.


In Bahrain, the All Share Index fell for the second consecutive month in Nov-2012 pressured by the political uprising in the country with a monthly loss of 0.86% to close at 1,048.81 points and extended its YTD losses to 8.3%. Trading indicators increased during the month as the number of shares exchanging hands totalled 54.29 mn shares, an increase of 65% from the previous month; spread over 894 deals with a total value traded of BHD 5.3 mn. The market extended its decline to reach its lowest closing of 1,038.46 points on Nov 21, marking a fresh low since the beginning of the year.

Finally in Oman, the lack of local market catalysts coupled with on-going global disputes regarding the fiscal cliff and Greece’s financial stance negatively impacted investor risk appetite resulting in the MSM 30 Index to snap a three month winning streak in November and end as the second worst performing market in the GCC region following TADAWUL and hence widen its YTD-12 losses to 2.83%. Accordingly, market breadth skewed towards the losers with an advancer-to-decliner ratio of 22-to-28 while 10 stocks remained unchanged. Liquidity decreased with volume falling 9.7% during the month to 195 mn shares compared to 216 mn in Oct-12, while value traded was down 6.6% to OMR 57.4 mn versus OMR 61.5 mn in the previous month. Market heavyweight banking & investment sector shed 1.65% of its market cap to reach OMR 3.06 bn, despite the 1.64% increase in heavyweight Bank Muscat to OMR 0.558; while the services & insurance sector slumped 1.7% to OMR 2.44 bn from OMR 2.48 bn and the industrial sector fell 2.9% to OMR 1.21 bn from OMR 1.25 bn.


 

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