GCC equities set to extend rally
Manama, February 23, 2013
GCC equities are forecast to generate moderate returns between 10 to 15 per cent in 2013, driven by an improvement in overall fundamentals, multiple re-rating and earnings growth, according to a new GCC Equity Markets Outlook report.
GCC markets performed well on a broad level during the past year, with two-thirds of the top 100 stocks ending with gains, while a sharper performance was seen from small-to-mid cap stocks, the report from Bahrain-based regional investment bank Securities & Investment Company (SICO) showed.
Large cap stocks, which had a subdued performance in 2012, are expected to outperform small cap stocks in 2013.
The report covers the prospects for a number of key sectors in 2013. Citing reasons why investors should invest in the GCC markets, the report mentions that the subsequent improvement in corporate earnings since 2009, when profits bottomed out, is not fully reflected in current market prices, leading to attractive valuations.
The balance sheet growth of GCC banks continues to remain strong, driven by an improved regional economic environment that has benefitted from expansionary fiscal policies.
The asset quality of banks is currently better than previous years, leading to lower provision charges and higher net profits. GCC banks are well-capitalised and have ample liquidity, and are thereby capable of meeting increased domestic lending needs, driven by higher government spending on infrastructure and industrial projects.
Another concern highlighted by the report is that regional economies are still significantly dependent on hydrocarbon revenues, making them vulnerable to changes in demand and pricing. Real hydrocarbon sector's GDP growth in the GCC is expected to decelerate from 4.5 per cent in 2012 to around 1 per cent in 2013, on the back of an expected slowdown in oil production.
Any pressure on oil prices will limit gains in heavyweight petrochemical stocks. However, non-oil GDP growth is forecast to remain stable in 2013 at 5.5 per cent, similar to 2012 levels, with the contribution of non-oil GDP expected to increase in the future.
The GCC is forecast to grow by 4.6 per cent in 2013, compared with 1.5 per cent for advanced economies, 3.6 per cent for broader Mena, and 5.6 per cent for emerging economies.
The GCC's aggregate nominal GDP is expected to reach $1.5 trillion in 2013, having achieved a 6 per cent compound average growth rate over the past five years. – TradeArabia News Service