Global equity markets reported mixed performance in February 2013 as investors were cautious, though the year commenced on a positive note. The momentum sustained in January quickly receded as investors adopted a ‘wait-and-watch’ approach towards the potential implication of Sequestration (spending reduction plan worth USD85bn initiated by the Fed) and growth concerns in China and Eurozone. Uncertainty over the Fed Reserve’s commitment toward the quantitative easing program did little to cheer investors in February. Meanwhile, Eurozone’s Purchasing Managers’ Index (PMI) fell during the month, reversing the uptrend witnessed in the previous two months. The Dow Jones Industrial Average gained 1.4% in February, while FTSE100 expanded 1.3%. In terms of GCC markets, major indices reported small gains.
 

The Tadawul All Share Index (TASI) declined 0.6% in February and consolidated below 7,000 as investors were awaiting another set of triggers following the announcement of good corporate results and an expansionary budget. Abu Dhabi’s ADX index was the best performer with a gain of 5.7%. ADX’s superior performance was ascribed to strong earnings announcements and generous dividend payouts in the banking sector. The Kuwait Price index rose 3.5% to become the second best performer among GCC markets in February. The DFM, which was the best performer in January 2012, posted a gain of 2.1%. The Qatari market underperformed other GCC bourses, declining 2.3% after increasing 4.4% the previous month.
 

Combined market capitalization rises 0.1%MoM
The combined market capitalization of all GCC bourses grew 0.1%MoM to USD767.8bn in February 2013-performance was mixed with four markets gaining while three markets declining during the month. Saudi Arabia, the largest GCC market, lost USD2.3bn from its capitalization in February 2013 compared with January 2013. The TASI’s market capitalization of USD381.6bn was equivalent to 49.7% of the total GCC capitalization. Qatar, the second largest GCC market based on capitalization, lost USD2.5bn from its capitalization in February, constituting 16.7% of the total GCC capitalization. On the other hand, UAE (Abu Dhabi & Dubai) markets added USD5.7bn to their capitalization in February 2013. GCC trading activity declines in February The overall trading activity in GCC countries declined on MoM basis in February 2013. Barring Qatar and Oman, all GCC markets recorded a fall in the value traded.

The Saudi market witnessed a decline of 7.8%MoM to USD31.5bn during the month, while the UAE markets saw a fall of 9.2%MoM to USD3.3bn. Saudi Arabia accounted for 84.5% of the total value traded during the month, while the UAE markets contributed 8.8% to the total value traded. The overall volumes declined 2.8%MoM to 24.1bn shares primarily due to a 14.6%MoM decline in volumes in the UAE markets.

IPO activity remained muted
Saudi Arabia was the only market to witness IPO activity in February. National Medical Care Co launched its IPO, offering 13.5mn shares at SAR27.0 each.
GCC market valuation remains fairly attractive
GCC equity markets had a good start to 2013 largely due to an uptick in earnings across key cyclical sectors such as Banking and Real Estate. Despite the recent surge, GCC markets continue to remain fairly attractive. In terms of one-year forward PE, the six GCC markets trade in the range of 9.4x-11.3x. This is fairly below the three- and five-year historic average of 13.5x and 13.4x, respectively, for the region as a whole. Valuation is also lower compared to similar frontier markets and key emerging markets. Within GCC, we are in favor of Saudi Arabia given its current compelling valuations coupled with a robust earnings outlook for 2013.

Development on the global macroeconomic front to be a key factor in the short term
We remain optimistic on the outlook for the GCC equity market in 2013, largely due to the presence of region-specific triggers such as continued momentum on reforms, healthy economic growth, investment in non-oil sectors, stabilization in oil prices and recovery in the real estate sector. However, the market remains exposed to volatility that could potentially emanate from lack of institutional participation. In the short-term, developments on the global macroeconomic front would play a key role in deciding the course of GCC markets due to lack of region-specific triggers in the post-earnings season. Continued buoyancy in oil prices coupled with positive surprises in the domestic macroeconomic scenario may bolster the region’s markets.