2008: A year better forgotten


 The GCC markets experienced a turbulent 2008 that resulted in all the markets closing the year with significant double-digit declines. The year again highlighted the correlation between markets and oil prices, which after hitting a life-time high of USD147 per barrel in July 2008, corrected by over 70% by December 2008. The first half of 2008 witnessed GCC markets combating rising inflation fuelled by strong oil prices and currencies pegged to the US dollar. However, the tide turned in the second half, largely because of oil and other commodity prices beating a hasty retreat, as recession roiled the developed economies, thereby forcing the high-growth emerging economies to slow down. During the year, most of the GCC countries reiterated their commitment to the dollar peg.

That, coupled with the decline in oil prices, led to a large number of investors, who were betting on continued gains from high oil prices and a possible de-pegging of currencies, exiting the markets. Consequently, GCC markets plunged on a YTD basis by 57% in 2008. On a comparative basis, both volume and value traded declined across all the GCC markets in 2008. The total volume traded in the GCC declined to 275.6 Bn shares in 2008 from 292.6 Bn shares in 2007. The total value traded also declined by 10.6% in 2008 (USD860.3 Bn in 2008 v/s USD962.7 Bn in 2007).

In December, GCC markets recorded a MoM decline of 8.0% as compared to the 13.8% decline seen in November. Emerging markets on the other hand gained 7.6% during December. The loss in December resulted in YTD losses for the GCC markets further widening to 57.0%. Emerging markets outperformed the GCC markets in December with lower YTD losses of 54.5%.

Market Indicators Market Indicators Indicators M. Cap (USD Bn) Last Close Dec 08 % YTD % 07 % P/E 07 P/E 08 Saudi (TASI) 258 4,803 1.37 -57.02 41 21 9 Kuwait (KSE) 107 7,783 -12.31 -38.03 24 14 6 Abu Dhabi (ADI)^ 71 2,390 -13.90 -47.49 52 16 6 Qatar(Doha SM) 76 6,886 13.42 -28.12 34 16 7 Dubai (DFMGI) 37 1,636 -16.71 -72.42 44 23 6 Bahrain (BAX) 21 1,804 -7.45 -34.52 24 9 6 Oman(Muscat SM) 11 5,441 -13.13 -39.78 62 14 8 MSCI GCC Index 347 345 -7.95 -56.99 47 19 8 Source: Excerpt from Markaz ‘Daily Morning Brief’ January 4, 2009 ^ PE is for UAE in totality, CY08 Estimates are Markaz Earnings Estimates Volatility (as measured by the Markaz Volatility Index) The year 2008 can also be called as “year of Volatility”, especially in GCC. During the year, volatility levels (as measured by Markaz Volatility Index) spiked up by 75%, with September being the most volatile month.

During September, volatility nearly tripled. However, during the closing month of December, volatility levels cooled off significantly. It is interesting to note that increase in volatility is almost always accompanied by reduced market returns and vice versa. Comparable MVX Levels as of December 31, 2008 Correlation Correlations among GCC markets continue to edge higher in tandem with common set of crisis being faced by the markets. However, compared to US markets (S&P 500) correlations continue to be attractive and in certain cases (Kuwait, Oman, Bahrain, & Qatar) continues to be either negative or close to zero. Short-Term Correlation 1Y Correlation (January 2008– December 2008) Saudi Arabia Kuwait Dubai Abu Dhabi Qatar Oman Bahrain S&P 500 GEM* Saudi Arabia 100 Kuwait 17 100 Dubai 33 47 100 Abu Dhabi 32 52 83 100 Qatar 26 53 67 73 100 Oman 26 42 61 64 62 100 Bahrain 11 62 49 54 55 47 100 S&P 500 23 (4) 14 13 1 (2) (1) 100 GEM* 31 18 40 37 31 30 25 48 100 Saudi Arabia The TASI was one of the worst performers among the GCC markets during 2008; shedding 56.5% from the start of the year as the economy experienced a severe slowdown in the second half of 2008, due to the significant decline in oil prices and the global credit crisis. The Insurance and Multi-investment indices declined by 73.7% and 67.0%, respectively, in 2008.

The volatility in crude oil prices was reflected in the Petrochemical index. During the first half of 2008, as crude prices rose to record levels the Petrochemical index grew marginally by 0.5%, while during the second half when the crude prices corrected more than 70% from their peak, the Petrochemical index declined by 65.8%. During December, Saudi Arabia’s Tadawul All-Share Index (TASI) exhibited a gain of 1.4% MoM. This was TASI’s first positive performance after three consecutive months of losses.

The growth during December resulted in the market continuing to trade at 8 times its forward earnings. For the year 2008, the total volume and value traded stood at approximately 58.5 Bn and USD522.4 Bn, respectively. While the volume traded rose by 1.2% YoY, value traded fell by 23.0% YoY in 2008. Kuwait The Kuwait Index in line with other GCC markets lost heavily during the year, declining 38.0% YTD. After a positive first half, Kuwait lost ground in the second half of 2008, with all sectoral indices taking a severe beating. The market witnessed another heavy fall in December as the Kuwait Price Index declined by 12.3%, posting its sixth consecutive monthly loss for 2008. The price index’s performance was determined by the Investment and Food indices. The Investment index mirroring the turmoil in the financial markets across the globe declined 53.2%. The Food index also declined 47.6%, as commodity prices, which were on an uptrend in the first half of 2008, cooled off significantly during the second half.

The Insurance index was the only index that managed to remain relatively flat in 2008, declining just 3.6%. The heavy decline during December in the Kuwait Price Index resulted in a 25% contraction in the market’s P/E multiple, with the market trading at 6 times its forward earnings. The total volume traded in Kuwait increased by 14.8% in 2008 (80.8 Bn in 2008 vis-à-vis 70.4 Bn in 2007), whereas the total value traded decreased to USD134.0 Bn in 2008 from USD138.8 Bn in 2007. United Arab Emirates The UAE markets were amongst the most affected by the global credit crisis of 2008, with the DFM shedding 72.4% during the year and the ADX losing 47.5%. The UAE General Index was down 56.6% on YTD basis. The DFM’s performance during 2008 was the worst in the GCC region, as it was hit hard by the fall in the real estate prices and the credit turmoil that engulfed the world’s financial markets. The Utilities, Real Estate, and Investment & Financial Services segments were the biggest losers on the DFM during 2008, declining by 83.7%, 82.6% and 69.9%, respectively. The ADX’s performance during 2008 was largely dictated by the Energy index (down 70.4%) and Real Estate index (down 66.8%). The UAE markets witnessed another selling spree in December, as both the Abu Dhabi Exchange (ADX) and the Dubai Financial Market (DFM) registered heavy losses during the month. The ADX posted a loss of 13.9%, while the DFM registered a loss of 16.7%.

The UAE market’s December performance led to a 14.3% contraction in market PE, with markets currently trading at 6 times their 2008 earnings. Trading activity in Dubai and Abu Dhabi declined significantly. The total volume traded in UAE during 2008 increased 13.8% (126 Bn in 2008 compared to 110.7 Bn in 2007), whereas the total value traded increased 32.1% (USD145.8 Bn in 2008 from USD110.3 Bn in 2007).

Qatar The Doha Stock Market was down 28.1% during 2008, due to weak investor sentiment caused by the credit crisis. The DSM witnessed a mixed year as stocks rallied in the first half of the year, but gave up all the gains and entered into negative territory during the second half. The Insurance segment (down 55.0%) was among the top losers on the DSM, as the sector turned in an extremely weak performance in 2008, barring the second quarter when it had registered a gain. The Services index was the second-biggest loser on the DSM, declining by 37.3%. The Doha Securities Market (DSM) posted a strong performance during December, propped up by domestic institutional buying support. The DSM was up by 13.4% during December, driven by the Banking (up 20.7%) & Industrial (up 27.3%) indices. The positive performance in December resulted in the DSM continuing to trade at 7 times its 2008 earnings. In 2008, the total volume of shares traded stood at 3.7 Bn as compared to 3.4 Bn shares in 2007. The total value of shares traded during the year increased 58.0% to USD47.3 Bn. Oman The Muscat Securities Market (MSM), like all the other GCC markets, was affected by the tough global economic environment. The index registered a double-digit loss of 13.1% in December, ending the year with steep declines in all its major indices. For 2008, the benchmark MSM-30 index declined 39.8% and closed at 5,441.

For the year, the Banking & Investment, Industrial and Services & Insurance indices declined 46.2%, 46.9% and 28.5%, respectively. To restore confidence among investors, the Capital Market Authority (CMA), in December, issued a license for the establishment of an OMR150 Mn open ended investment stability fund. Of the OMR150 Mn, government holdings will comprise 60%, while the remaining 40% will be distributed among pension funds and the private sector. With this fund, the government plans to implement policies that would ensure continuous growth of the securities market. At current price levels, the Omani market is trading at 6 times its 2008 earnings. During 2008, the total volume traded increased by 37.4% (4.1 Bn in 2008 v/s 3.0 Bn in 2007) while the total value traded increased by 66.3% (USD8.6 Bn in 2008 v/s USD5.2 Bn in 2007). Bahrain In the first half of 2008, the exchange had posted a six-month gain of 3.8%. Furthermore, the BSE also reported a yearly growth of 348.8% in total volume of shares traded and an increase of 33.8% in market capitalization in first half of 2008. However, the BSE’s market cap has contracted to USD21 Bn in December from around USD31 Bn in June.

On a YTD basis, the index lost 34.5% in 2008, as against a gain of 24.3% in 2007. All the major sectoral indices were down, with the key sectors of Investment and Banking losing 37.9% and 39.2%, respectively. Until August, the Banking sector has posted a YTD gain of 2.24%. However, as the credit crisis intensified, the Kingdom’s banking stocks went into a tailspin and the Banking index declined 10.4%, 11.8%, 15.3% and 8.4% in September, October, November and December, respectively. Hotel and Tourism was the only sector to post yearly gains of 23.0% in 2008. The Services Index, which was up 0.8% in December, has reported a loss of 19.4% in 2008. The Bahrain Stock Exchange (BSE) ended the year with a monthly loss of 7.5% in December. This was the seventh consecutive monthly loss posted in 2008, with November witnessing the highest loss of 12.2%. At current price levels, the Bahraini market is trading at 5 times over its 2008 earnings. In 2008, total volume traded in Bahrain stood at 1.6 Bn, whereas the total value traded increased 136.6% during the year from USD0.9 Bn in 2007 to USD2.2 Bn in 2008.

About Markaz Kuwait Financial Centre 'Markaz', with total assets under management of over KD1.2 billion as of September 30, 2008, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region.

Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997; and was awarded a BBB+ corporate rating by Capital Intelligence Ltd.