GCC equities off to a flying start
Dubai, March 4, 2014
GCC equities got off to a flying start in the first two months of the year, with the UAE and Qatar markets showing substantial strength, said a report.
Dubai and Abu Dhabi's stock indices appreciated by 24.17 per cent and 15.2 per cent respectively, on a very high turnover, and led largely by retail participation, according to Bahrain-based brokerage SICO.
Qatar rallied 13.41 per cent year to date and due to buying by foreign institutional investors, said the brokerage in its statement.
Since the momentum shows no sign of abating in these two markets, investors are advised by the writers of the report to focus on earnings growth and not rely solely on a rise in multiples to drive stock returns, as has been the case for the past year.
Thus a greater emphasis on earnings should be the case - stocks that have the most room for earnings growth and that can surprise on the upside, are the preferred picks, stated SICO Research in its 'GCC Equity Markets Outlook 2014' strategy report.
The GCC equity markets performed strongly last year, with the S&P GCC Price Index increasing by 24.6 per cent. The equity markets of Dubai and Abu Dhabi were the star performers, growing 108 per cent and 63 per cent respectively, it noted.
According to SICO, the stellar returns last year are however unlikely to be repeated this year; with the bull market no longer able to thrive solely on the back of an expansion in stock multiples.
There are some important themes playing out, which will have an impact on GCC equities.
These include the recently-introduced labour regulations in Saudi Arabia; the impact of the Expo 2020 award to Dubai, the FIFA World Cup 2022 to Qatar; the UAE and Qatar's upgrade to emerging markets status by MSCI; and the possible merger of the DFM and Abu Dhabi indices.
The report also highlights the prospects for global and regional economic growth.
According to the IMF's latest forecast, the world economy is predicted to grow to 3.7 per cent this year from 3 per cent a year earlier; driven primarily by advanced economies, as the headwinds of fiscal austerity and de-leveraging fade.
A slowdown in growth in major emerging markets - in particular China, Russia, India and Mexico - is nevertheless creating a drag on overall global economic expansion.
"We are maintaining our Brent crude price assumption at $100 per barrel for the year," SICO Research head Nishit Lakhotia said.
"We expect oil prices to remain firm in the first half of the year on the back of supply outages in Libya, South Sudan and Nigeria and strong North American demand; although a weakness cannot be ruled out during the second six months of the year.
At this level, we expect all GCC economies, save for Bahrain and Oman, to post surplus budgets this year, albeit with lower surpluses."-TradeArabia News Service