GCC equity markets moved in opposite directions as multiple factors weighed on market performance during the month with an underlying support from the positive trend in oil prices. The month started on a positive note supported by oil prices that was up by almost 13 percent during the month on the back of hopes of a production freeze during the OPEC meet scheduled to be in September-16.
However, economic woes in Saudi Arabia that reported a decline in foreign assets, along with tightening banking liquidity, pulled down the market making it the worst performing GCC market during the month with a decline of 3.5 percent.
Moreover, market sentiments continued to remain negative in Saudi Arabia, as corporate earnings for Q2-16 reported more than 10 percent decline, highlighting the impact of oil woes. On the positive side, Qatar benchmark saw the highest gain in the GCC during the month in anticipation of the exchange being included in FTSE’s Emerging Markets Index, that raised hopes of higher flow of passive funds into the Qatari market. However, an increase in loan to deposit ratio reported by Qatar Central Bank eased some of the FTSE related gains towards the end of the month.
On the international front, there was increasing confidence that the US Fed would increase interest rate this year, with some economists pegging it to happen as early as next month. This comes despite the weak US economic growth during 1H-16. Higher wages in addition to a strong labor market is expected to push inflation higher, providing the basis for an interest rate hike; as the aforementioned sentiment was echoed at the Jackson Hole conference that included attendees from major central banks across the globe.
Witnessing only a marginal increase, trading activity in the GCC continued to remain low due to seasonality, which is expected to extend during September-16.
Kuwait Stock Exchange
KSE indices continued to remain subdued during August-16 amid continued low liquidity in the market as compared to historical averages. The KSE Weighted Index and large-cap KSE-15 Index declined by 1.0 percent and 1.1 percent, whereas the KSE Price Index declined by 0.6 percent, indicating profit taking in large-cap stocks. The indices traded within a very tight range during the month with minimal volatility. Trading activity improved marginally during the month owing to the low base effect recorded in July-16. Total shares traded on the exchange increased by 7.8 percent to 1.4bn shares as compared to 1.3bn shares during the previous month, whereas total monthly value of shares traded increased by 15.2 percent to KD 152mn as compared to KD 132mn during the previous month. The difference between the m-o-m change in volume and value also supported the fact that large-cap stocks were the focus of the month. The average daily volume traded declined by 15.6 percent to 15.2mn shares whereas the average value traded during the month declined by 9.8 percent to KD 6.6mn.
In terms of sector performance, the Financial Services Index continued to lead monthly returns for the second consecutive month although the gains remained marginal at 1 percent followed by the Real Estate Index and the Industrial Index with gains of 0.9 percent and 0.6 percent, respectively. Shares of KAMCO Investment Co. witnessed a gain of 20.8 percent, the highest returns in the Financial Services Index, after the company reported strong 1H-16 earnings, followed by Manazel Holding (+14.4 percent) and Al Salam Group Holding (+8.5 percent). A gain of 1.9 percent in shares of KIPCO, the largest company in the sector, also supported the positive returns of the overall sector. Meanwhile, in the Banking sector, KIB (+3.2 percent) and KFH (+3.4 percent) were the only banks that reported positive returns during the month, whereas shares of CBK, which reported an almost one-third decline in 1H-16 earnings, continued to decline by almost 15 percent after a decline of 10 percent during the previous month. In the telecom sector, all the shares saw negative returns with Ooredoo declining the most by 6.8 percent.
Saudi Arabia (Tadawul)
The Tadawul All Share Index recorded the worst performing market for the second consecutive month during August-16, reaching a sixmonth low level below the 6,000 mark during the last week of the month only to bounce back during the last few trading sessions. The index closed the month with a decline of 3.5 percent to reach 6,079.51 points, a YTD decline of 12 percent , the steepest in the GCC. The index declined despite a 12.7 percent surge in crude oil prices during the month as the gains in the petrochemical index, which came as a response to improving oil prices, was more than offset by declines in other sectors. The investor participation remained low during the month on the back of low seasonal liquidity in the market further exacerbated by lack of any positive catalyst for investors that would trigger a buying opportunity.
The implementation of the new qualified foreign investor (QFI) rule sooner than expected also failed to lift investor sentiments. In an effort to fast-track capital market reforms, the Saudi Arabia CMA reduced the minimum AUM requirement criteria for foreign investors from SAR 18.75bn to SAR 3.75bn or $1bn and made the rule applicable starting September-16 instead of previously indicated schedule of early next year. The rule also increased the maximum shareholding of an individual foreign investors in a single company to 10 percent from the previously announced 5 percent. Moreover, the Kingdom will also allow foreigners to participate in IPOs in the country from January-17. On the other hand, there are also plans to start an SME exchange that would run parallel to the main exchange with fewer requirements for offering and listing.
Abu Dhabi Securities Exchange
The ADX index witnessed the second-highest decline in the GCC, for the month of Aug-16, and receded by 2.3 percent.
The index closed at 4,471.01 points, as all sectoral indices barring the Energy index were in the red for the month. Consumer Staples names fell the most during the month by 20.0 percent, as the largest stock in the index – Agthia Group declined by 23.3 percent for the month. Other sectors, which declined, were Banks and Investment & Fin. Services indices, which went down by 3.2 percent and 3.1 percent, respectively. Banks were pulled down by large caps as heavyweight names such as FGB (-2.9 percent), NBAD (-4.5 percent) and ADCB (-7.0 percent) all witnessed declines for the month. The Industrials sector also witnessed a decline of 2.7 percent, as key stocks such as RAK Ceramic and Gulf Pharmaceutical Co. witnessed declines of 2.5 percent and 2.65 percent, respectively. The Energy sector with m-o-m gains of 4.9 percent saw both its stocks witness higher prices led by Abu Dhabi National Energy, which went up by over 10.4 percent.
In earnings related announcements during the month, investment firm Waha Capital, which owns a stake in aircraft leasing company AerCap, posted a 22 percent drop in Q2-16 profit as lower income from financial investments and higher costs weighed on earnings. Waha Capital made a net profit AED 130mn in the Q2-16 compared to a profit of AED 167mn in the same period last year. Separately, Abu Dhabi National Energy reported H1-16 revenues of AED 7.9bn and EBITDA of AED 4.1bn, which were down 19 percent and 21 percent respectively compared to H1-15. This was reportedly due to a 39 percent drop in realised oil and gas prices which resulted in a net loss of AED 1.2bn compared to a net loss of AED 165mn in H1-15. During Q2-16, the Company completed a $1bn bond issuance, comprising two $500 million tranches with tenors of five and ten years.
Dubai Financial Market
DFM General Index was able to sustain its gains from the previous month in August-16, and was one of the only two markets in the GCC, which were able to close higher for the month. DFM closed the month marginally up by 0.6 percent at 3,504.4 points. Sectoral trends were mixed, as indices that gained during the month were led by Industrials that went up by 6.0 percent, followed by Services that went up by 4.9 percent. Amongst the key indices that lost ground during the month, were Banks that closed in the red marginally, declining by 0.8 percent, driven by a 4.5 percent drop in the stock price of Emirates NBD. The stock reacted to reported cost optimization measures of a headcount reduction and news around rumors that the bank is in talks to buy Barclay’s Egypt Assets. The main laggards were Transportation & Insurance, which went down by 5.0 percent and 1.7 percent respectively.
In prominent Q2-16 earnings releases, Dubai Parks reported that for the first two operational months of 2016, revenue was AED 297mn generated from 0.9 million visits to our destination. They expect revenues for 2017, which would be the first full year of operations to be close AED 2.4bn. Air Arabia reported H1-16 revenues of AED 1.84bn, up 5.5 percent compared to same period last year, as 4.1 million passengers flew Air Arabia in H1- 2016, up 14 per cent from H1-15. The airline reported a net profit of AED 245mn for H1-16, an increase of 3.5 percent compared to the AED 237mn reported for the same period last year. DSI reported a y-o-y decline of 23 percent in revenue, which stood at AED 1.83bn in H1-16 as compared to AED 2.39bn achieved in H1-15. The fall in revenue was attributed to the significant contraction and prolonged volatility in the construction sector, a decline in new project awards and adjustments across key markets in the GCC. A net loss was also reported for H1-16 of AED 216mn as compared to a net profit of AED 34mn in H1-15. The loss is ascribed to project cancellations and additional one-off provisions taken in the prevailing challenging environment.
The QE 20 index was the best performing index in the GCC for the second consecutive month, increasing by 3.6 percent for the month of Aug- 16, as it closed at 10989.79 points. The increase was largely attributed to FTSE Russel upgrading the Qatar market to secondary emerging market. The move was welcome at a time where the country was keenly looking at deepening its capital markets, following earlier upgrades by two other global index compilers MSCI and S&P in 2014. The Qatar All Share index also gained by 3.1 percent for the month, as most sectoral indices ended in the green for the month. The move up was mostly supported by the Telecoms index, which went up by 6.9 percent for the month, followed by Insurance, which went up by 6.2 percent.
Banks & Financial Services index also gained during the month as it moved up by 5.7 percent m-o-m, as most large cap banks such as QNB (+7.5 percent), CBQ (+9.2 percent) and QIB (+4.5 percent) drove the increase. The Real Estate index reversed and receded for the month by 2.1 percent, even as the latest index of real estate prices released by Qatar Central Bank reportedly indicated a drop of 3.8 percent q-o-q in Q2-16. In corporate developments, QNB Group announced the successful completion of a bond issuance under its Euro Medium Term Note initiative in the international capital markets. The bank issued a US$ 1.0 billion tranche in Aug-16 that matures after 5 years with a fixed coupon rate of 2.125 percent per annum. The issue was oversubscribed over 2.5 times, as it attracted strong interest from investors around the world. In corporate ratings action, Moody’s affirmed Ooredoo’s long-term corporate credit ratings at A2 with an upgrade in the outlook from “Negative” to “Stable”. The ratings update reflects their expectations that Ooredoo’s EBITDA margin and free cash flow improvement derived from their efficiency drive will continue over the next two years. Moody’s also upgraded Masraf Al Rayan’s long term issuer ratings to A1 from A2 and the outlook on the long-term ratings was changed to stable from positive reflecting consistently strong asset quality performance, strong profitability and capital metrics and continued business diversification as a result of growth and profitability of the UK subsidiary.
After a three-month streak of posting m-o-m gains, the Bahrain All Share Index lost steam and went into the red m-o-m, as it posted a decline of 1.2 percent in Aug-16, as compared to July-16. Market breadth was weak as 5 stocks advanced while 18 stocks saw lower share prices during the month as compared to Aug -16. The Industrials sector lost most ground during the month of Aug-16, declining by 8.8 percent, solely due to the decline in Aluminum Bahrain, which lost 9.1 percent. The Services index also declined 4.7 percent, as Batelco sunk by 5.3 percent, whiule BMMI went down by a lower 2.8 percent. The Investment index was the only sector, which gained ground during the month as went up marginally by 0.8 percent, as GFH gained by 18 percent for the month of Aug-16.
Ahli United Bank (AUB) reported a net profit of $301.2mn H1-16, an increase of 8.2 percent in H1-16 as compared to the net profit figure of $278.4mn achieved in H1-15. AUB grew its operating income with net interest income (NII) rising by 4.0 percent to $407.4mn during the first half of 2016. Total operating income grew by 7.8 percent from $529.3mn to $570.9mn, as per the company filing, while cost to income ratio improved to 27.7 percent as against 28.8 percent in H1-15. Batelco’s gross revenues were down by 2 percent y-o-y in H1-16 to BH D182.9mn ($485.1mn) ascribed to competitive pressures in key markets. EBITDA for the period was BHD 71.3mn ($189.1mn), representing a margin of 39 percent, a 2 percent increase y-o-y. Subscriber base also declined by 2 percent y-o-y to 9mn subscribers.
Muscat Securities Market
The MSM30 Index saw the third highest decline during August-16 as the market failed to maintain the positive momentum seen during the start of the month and entered the negative territory during the last week of the month. All of the three sectoral indices closed the month in the red led by the Financial index that declined by 2 percent, followed by the Services Index and the Industrial Index with declines of 1.9 percent and 0.1 percent, respectively. The Services index declined for the third month in a row, whereas the other two indices declined after showing strong gains during July-16. Within the Financial sector, shares of most of the major banks declined led by NBO which fell 4.3 percent, followed by Bank Dhofar and Bank Muscat with declines of 2.1 percent and 1.0 percent, respectively. Bank Dhofar, which is in the process of a merger with Bank Sohar, took a $100mn syndicated loan in order to fill its funding gap. In a related development, Moody’s warned that although the aforementioned merger would be positive for Bank Dhofar’s credit profile, short term challenges continue to sustain in addition to the weak operating environment that would exacerbate challenges.
Trading activity on the exchange picked up after reaching record lows during the previous month with volumes up by 11 percent to 199mn shares as compared to 179mn during the previous month, whereas value traded increased by a slightly higher 13.8 percent to OMR 52mn as compared to OMR 46mn during the previous month. The average daily trading activity highlighted the weakness during the month with average daily volume down by 17.9 percent to 8.7mn shares as compared to 10.5mn shares during July-16. The average daily value traded also declined by 15.9 percent to reach OMR 2.3mn during August-16 as compared to OMR 2.7mn during the previous month. The Financial sector continued to account for the lion’s share of trading activity during the month with 51 percent of value traded coming from this sector, whereas the other two sectors accounted for almost equal share of the remaining monthly value traded.
The monthly gainers chart was led by Global Financial Investment with a gain of 10 percent followed by Gulf International Chemicals and Raysut Cement with gains of 7.2 percent and 6.1 percent, respectively. Shares of Raysut Cement surged during the month after the company announced setting up of a cement plant in the country’s Duqm special economic zone along with Oman Cement. The two cement companies registered the joint venture company, Al Wusta Cement LLC, to manage the plant. Moreover, Raysut Cement has also constructed a cement distribution terminal at Duqm port which is expected to be operational in Q3-16.
Renaissance Services led the monthly decliners list with a fall of 12 percent after the company reported an 8.5 percent decline in revenues for H1-16 primarily affected by the decline in oil prices, as stated by the company. Al Jazeera Steel Products was the second highest decliner for the month with a fall of 11.2 percent followed by Sohar Power that recorded a decline of -9.2 percent. The overall market breadth remained skewed towards decliners that included 26 stocks as against 10 gainers. Meanwhile, the monthly value traded chart was topped by bank Muscat with OMR 9.8mn worth of shares traded during the month, also resulting in the highest volumes during the month recorded at 24.9mn shares. Oman Telecom garnered the second-highest value of share traded worth OMR 4.8mn, followed by Ooredoo (OMR 3.7mn).