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Markets off to strong start in 2014 on improved outlook DFM seen by far best performer, up 52% ytd

KUWAIT CITY, May 24: GCC equity markets got off to a strong start in 2014, following an impressive performance in the previous year. By the end of April, the region had outperformed international markets with the S&P GCC index up 16% year-to-date (ytd) compared to developed and emerging market indices. Those were largely flat. As of end of April, GCC markets had added $207 billion in capitalization thus far in 2014 to reach a total $1.14 trillion.  Several factors have been behind the rally in regional markets. The outlook for the GCC economies remained favorable especially when compared to emerging markets that continue to show signs of weakness. At the same time, GCC fiscal positions continue to be supported by high oil prices, providing steady financing to development spending.

Additional support has come from corporate sector profitability, which picked up and is expected to continue to improve. A sample of companies listed on all GCC markets reveal a 10% increase in corporate profits in 2013 compared to the previous year. Regional markets have also benefited from the decision by MSCI to upgrade the UAE and Qatar to “Emerging Market” status from frontier markets, effective in May. The move, which could lead to a further inflow of institutional funds, has already boosted those two markets considerably. In addition, markets in the UAE and Qatar continued to benefit from improved outlooks as the countries geared-up to host the Expo 2020 and 2022 FIFA World Cup, respectively.

Among regional markets, the Dubai Financial Market (DFM) has seen by far the best performance, up a remarkable 52% ytd by the end of April. Qatar Exchange (QE) is next, having rallied a good 24% thus far in 2014. Meanwhile, Oman lagged behind its peers, with the Muscat Securities Market (MSM) retreating 2% since the end of 2013. Other GCC markets have also seen decent or moderate rallies thus far in 2014. Trading volumes saw a remarkable increase in the first four months of 2014. GCC daily traded volumes averaged $3 billion, up 50% from December’s average. The rise in volumes was particularly significant in UAE and Qatar as fresh liquidity entered these markets in anticipation of the MSCI upgrade.

Although most GCC markets have returned to their pre-financial crisis levels and even topped them with some decent gains, the S&P GCC remains 9% below its peak which was on the eve of the Lehman Brothers collapse in 2008. GCC markets suffered significant losses following the 2008 credit crunch. While the Saudi, UAE and Qatari markets have registered gains over their 2008 peak, the Kuwaiti, Omani and Bahraini markets have yet to return to their pre-crisis levels.

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