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GCC Markets Mixed, OPEC Deal Uncertain

Date : 08/11/2016
Author:  Marmore MENA

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According to Marmore’s recently released Monthly Market Review, GCC bourses had a mixed October, with Saudi’s TASI index rising 6.9 per cent, followed by Egypt (5.5 per cent) and Morocco (5.2 per cent). On the other end of the spectrum, Oman (-4.3 per cent), Dubai (-4.1 per cent) and Abu Dhabi (-3.9 per cent) indices witnessed fall. Saudi Arabian enjoyed their longest winning streak in more than two years, on the back of investor optimism and improving outlook for the kingdom’s banks. Saudi Arabia sold the largest international sovereign bond (USD 17.5bn) in emerging-market history, which would improve liquidity boost payments to contractors thereby help improve expectations regarding non-performing loans. Egyptian markets were buoyed by the possibility of a USD 12bn loan approval from the IMF. Speculation continues to mount that the central bank would devalue the currency, as the black market and official rate diverged to a record discrepancy. The country’s currency had been tumbling almost daily on the black market since Saudi Arabia halted petroleum aid to Egypt this month, forcing it to spend USD 500mn for oil products on the spot market.

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Selling pressure created by Foreign Institutional Investors (FIIs) led to the fall in the Muscat index, while sharp fall seen in the Dubai index was attributed to profit booking, due to volatility in the international commodities and currency market. In terms of valuation, P/E of Morocco (18x), Qatar (14.3x) and Jordan (14.2x) markets were the premium markets in the MENA region, while the markets of Egypt (8.5x), Dubai (8.8x), and Oman (9.3x) were the discount markets.

Blue Chips also had a mixed month, with National Commercial Bank (Saudi Arabia) and Zain (Kuwait) ending the month at the top of the pile, gaining 33.5% and 16.4%, respectively. Kuwait Projects lagged behind the rest of the blue chips, falling by 10%, despite an 8% YoY rise in nine-month net profit. Although third quarter profit fell by 1.6%, shares of NCB were buoyed by the expected easing of liquidity, as the kingdom issued international bonds to tide over rising deficit. The bank cited an 18.7% jump in total operating expenses, caused by higher impairments on financings and investments for the fall in net profit. Zain Kuwait's number of subscribers increased to 2.9mn for the nine months to 30 September, in a very challenging period that witnessed intense price competition. The company also reported a better than expected 12% rise in third-quarter profit. Qatari telecom operator Ooredoo reported a 51% fall in third-quarter net profit, as the earnings continued to be affected by foreign exchange losses and plunging earnings from Iraq, although a strong domestic performance has helped mitigate the impact. Emaar Properties reported a 31% jump in third-quarter profit, as rising property sales overcame the wider real estate market malaise.

Saudi bond issue and market reforms
Saudi Arabia raised USD 17.5bn in the biggest ever bond sale from an emerging-market nation, as the kingdom sought to shore up finances battered by the slide in oil. The government supposedly sold dollar-denominated bonds due in five years yielding 135 basis points more than similar-maturity US Treasuries, 10-year notes at a spread of 165 basis points and 30-year securities at 210 basis points. The kingdom raised USD 5.5 bon in each of the five- and 10-year bonds, and USD 6.5bn in 30-year debt.

In a bid to improve foreign investment in capital markets and bring the Saudi stock market into the global investing mainstream, the nation's 175 listed companies are now required by the Capital Markets Authority to adopt the International Financial Reporting Standards (IFRS) from Jan 2017.

Oil Market Review

Brent crude rose to USD 53.14 per barrel in the month of October, before falling 9% and closing the month at USD 48.3 per barrel, as the OPEC deal to reduce crude output faced some obstacles towards the end of the month. OPEC members Iran and Iraq disagreed with the organization’s data on production levels, and have now refused to limit their crude output. Iraq, the second-largest producer in the cartel, is reportedly asking for exemptions from any production limits due to disruptions caused by the insurgency, while other members, including Iran, Libya and Nigeria already have exemptions.

Tags:  Capital Markets, MENA, Oil, Stock Market

Ratings:
 Current rating: 0 (3 ratings)

Brent’s record rise sustains MENA momentum

Date : 08/05/2016
Author:  Marmore MENA



According to Marmore's recently released Monthly Market Review, April was a positive month for all MENA indices, barring Bahrain, Qatar and Jordon, as oil rise buoyed markets. Saudi Arabia (9.4%) was the star performer, followed by Oman (8.7%) and Morocco (6.9%), while Kuwait price and weighted indices rose 3.1% and 1.8%, respectively, in April.  Jordan was the worst performer in the month of April, registering a fall of 3.4%. Brent crude rose to its highest monthly gain in seven years, climbing 21.5% to close the month at USD 48.13 per barrel. S&P GCC also improved by 5.7% in March, to close at 95 points.




Gulf markets have been gaining for the past couple of months, on the back of strong oil market performance, with the belief that the oil price movements have turned a corner. Investor focus has now shifted to the corporate earnings that are affected by the austerity measures, which were undertaken due to low oil prices. The TASI index performance was largely due to companies beating their first-quarter earnings estimates, as well as the surge in oil prices. The combined net profits of Qatar's publicly traded firms stood at QR10.8bn for the first quarter of 2016, down 18.9% over 1Q15. Real Estate and Industries sectors led the rout falling by 62.5% and 18.6%, respectively.

MENA markets liquidity had a negative month, with volumes decreasing by 11% and value traded falling by 5.1%. Oman and Kuwait witnessed increases in both volume and value traded, whereas the rest of the markets recorded declines in both. Volume and value traded in Oman increased by 61% and 42%, as investors responded to positive earnings season and rise in oil prices.

Most Blue Chips ended the month of April in green, with Al Rajhi Bank (Saudi Arabia) topping the charts at 16.4%, as the company witnessed a 33% increase in quarterly earnings, mainly due to higher fee income. SABIC (KSA, 13.7%) and Emaar Properties (UAE, 13%) followed, as the former benefitted from rise in oil price, while the latter reported a 17% rise in earnings, despite weakening market conditions. Leading UAE banks witnessed large earnings decline in the first quarter, and most, with the exception of a few, reported rising pressures on key performance indicators such as loans and deposit growth, and asset quality in their first quarter results. Abu Dhabi Commercial Bank (earnings, -18%), National Bank of Abu Dhabi (-11%), Commercial Bank of Dubai (-18%) were some of the big names on the list. ADCB and CBD witnessed a fall in operating income, because of drop in business volumes, while NBAD’s incomes reflected lower investment gains and higher provisions.

Global Oil News
OPEC and non-OPEC producers failed to reach a deal to freeze oil output at the Doha meeting in April, as OPEC members requested for more time to reach a deal among themselves, possibly at a June meeting, before striking one with other country producers.

Kuwaiti oil and gas workers have ended a three-day strike that had temporarily cut the OPEC member's crude production by nearly half. The strike forced Kuwait Oil Company (KOC) to cut output to as little as 1.1 million barrels per day (bpd), down from a normal level of about 3 million bpd, as workers fear reduced salaries, benefits and staff layoffs will be part of a planned government overhaul of the payroll system in the public sector.

According to Reuters, OPEC's oil output rose in April to close to the highest level in recent history, as production increases led by Iran and Iraq more than offset the strike in Kuwait and other disruptions. The region’s top exporter, Saudi Arabia, made no major change to its output, despite the kingdom hinting it could boost supply after OPEC and non-member nations failed to reach an agreement earlier in the month.

Despite the recent rally, oil markets remain oversupplied by about 1-2 million barrels of crude per day, which has led to global storage tanks filled to their rims with unsold fuel.

Oil Market Review
Brent crude hit a high of USD 48 per barrel in the month of April, up 21.5% from March, the best monthly gain seen since May 2009. Weaker dollar and positive sentiment about the global supply glut easing raised crude oil futures by more than USD 20 per barrel, since witnessing 12 year lows of below USD 30 per barrel, in the first quarter. Oil price rose, despite OPEC and non-OPEC producers failing to reach a deal to freeze oil output. Members informed non-OPEC producers that they need to first reach a deal within OPEC, possibly at the upcoming June meeting, before being able to invite other producers to join the accord.


Tags:  Capital Markets, MENA, Oil, Stock Market

Ratings:
 Current rating: 5 (3 ratings)

Fiscal Measures Worry Markets

Date : 10/11/2015
Author:  Marmore MENA

According to Marmore’s recently released Monthly Market Review, MENA markets ended mostly in red during the month of October 2015. Abu Dhabi (-4.0%) suffered the most, followed by Saudi Arabia (-3.8%), Dubai (-2.5%) and Bahrain (-2.0%). Despite the increase in oil prices during October, the lower-than-expected oil prices continue to strain the MENA markets. The regional markets are also responding to instability in the global economy and anticipated monetary tightening in response to low oil prices.  KSA is contemplating spending cuts and tax increases to manage its fiscal deficit. Saudi Arabia's weakness is dampening sentiments of the region, even in countries such as the United Arab Emirates & Kuwait, which are relatively well placed to cope with an era of cheap oil. Egypt (3.1%), Oman (2.4%) and Qatar (1.2%) markets gained in October. Kuwait’s price index ended the month of October with a marginal gain of 0.9%. On the contrary the Kuwait weighted index remained stagnant. 



Global equities ended the October month with strong gains after a sharp fall in August and September, which was fueled by fears over the global slowdown, with China as the epicenter. Oil prices rose after the U.S. oil rig count fell for a ninth straight week, indicating potentially lower crude output in coming months in the face of a global supply glut. Subdued worries about slowing Chinese growth, proactive approach of rate cuts by People’s Bank of China to stimulate the economy and investor’s positive response to U.S. Federal Reserve continued lower interest rates low and the European Central Bank further easing are some of the key reasons that fueled the rally of the Global equity markets in October.
 
MENA markets liquidity gained some momentum in October, with volume increasing by 12% and value traded by 14.2%, post the lulled market activity due to Eid and investor sentiments. However, Abu Dhabi, Dubai and Bahrain are a few exceptions where the trading activity declined. Amongst the MENA markets, Morocco showed the most improvement with value traded increasing by 33.3% and volume traded increasing by 58%. With the value traded declining by 79% and volume by 68%, Bahrain’s market liquidity was worst hit. 
 
Emirates Telecom (UAE) has benefited from its decision to allow foreign and institutional investors to own its shares from Mid-September and has rallied since then. Despite the drop of 9% in Q3 profits, it managed to be the top gainer (7%) in October, followed by SABIC (KSA) and NCB (KSA) which gained 4.8% and 4.5% respectively. First Gulf Bank (-11.5%), National Bank of Abu Dhabi (-8.6%) and Al Rajhi Bank (-5.9%) were the top three losers in October. With the top three losers being banks, it is evident that banks in the region are grappling with margin pressures and liquidity issues as the oil producing states face a squeeze on budgets from lower oil prices.
 
Saudi Arabian Government is actively pursuing several initiatives to keep its fiscal budget deficit in check. Saudi Arabia is considering raising domestic energy prices; the existing system of subsidies in the kingdom is blamed for waste and surging fuel consumption. Saudi Arabia's government was in talks with local banks to sell them 20 billion riyals (USD 5.3 billion) of local currency bonds.

Figure 1: Brent Crude and WTI, 2014-Present, USD per barrel



Iran will officially notify producer group Organization of Petroleum Exporting Countries (OPEC) in December of its plans to raise its crude oil output by 500,000 barrels per day (bpd). Kuwait said there were no calls within OPEC to change the oil group's production policy and that lower output from high-cost producers could support prices in 2016, adding to signs OPEC will keep its strategy of defending market share. Meanwhile, OPEC forecast in a monthly report that demand for its oil in 2016 would be much higher than previously thought as lower prices curb U.S. shale oil and other rival supply sources, reducing a global surplus. U.S. oil drillers removed 16 rigs in the week ended Oct. 30, bringing the total rig count down to 578, the least since June 2010.

Tags:  Capital Markets, Economy, GCC Markets, MENA

Ratings:
 Current rating: 0 (3 ratings)

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