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Kuwait Financial Centre “Markaz” recently released the report on GCC Outlook for the second half of 2013. In this report, Markaz looks at the performance of the GCC countries in the first half of 2013 and provides an outlook for the rest of year, for each individual country.
Sustained high oil prices, expansive fiscal and accommodative monetary policies led to a strong rally in the first half of 2013. All the GCC markets gained amply in the first half of 2013, reacting positively to high fiscal surpluses and infrastructure expenditures, strong comeback in the real estate market, and improvement in tourism sectors. GCC heavyweight Saudi Arabia ended the first half with a 10.2% gain in the Tadawul index. Qatar, Oman and Bahrain recorded healthy gains in the range of 10% to 12% in 1H13. Abu Dhabi (+36.9%) and Dubai (+40.7%) markets posted the highest gains this half, due to improvements in corporate profitability.
The GCC countries continued to invest heavily in the non-hydrocarbon sectors in a bid to diversify their economies. Construction and transport sector contracts worth over USD 39 billion have been awarded for projects in the GCC, in the first half of 2013. Surge in lending and strong economic performance in hydrocarbon producing GCC countries, led to record performance in the Banking sector, in the first half of the year.
The highlight of the first half of the year was the long expected MSCI upgrade of UAE and Qatar to Emerging Market status. The move is likely to take effect in Q2 of 2014, with UAE accounting for 0.4 percent of the index and Qatar accounting for 0.45 percent.
Value traded continued its upswing in 2013 after bottoming out in 2010. Given the positive YoY growth in liquidity in 1H13, we have a Positive view for most GCC markets.
At the beginning of 2013, Markaz’s report noted that the bleak global outlook would lead to a sluggish demand for oil. Brent Crude lost 8% in the first half of the year, due to slowdown in emerging markets and uncertainty in developed markets. World oil demand growth for 2013 has been revised down to 0.8 million barrels per day.
Subdued demand for oil globally and the resultant slowdown in production levels, is expected to further slowdown real GDP growth for the GCC to 3.7% in 2013. Prolonged recession in Eurozone, weak recovery in the US, and slowdown in emerging market economies will lower commodity prices.
The report expects growth to be moderate in the region considering the political developments in Bahrain, Qatar and Kuwait. Inflation in GCC is also expected to be moderate in 2013, due to weak global economy. Expansionary fiscal policy in the form of large scale infrastructure projects, generous subsidies and state sponsored welfare schemes are expected to bring down the fiscal surpluses in GCC countries.
Inclusion of UAE and Qatar in the MSCI Emerging markets index (effective May 2014), would aid in inflow of institutional money into their markets. In UAE, earnings growth performance was dominated by banks and financial institutions which grew at 19% (YoY). Saudi Arabia is expected to take cues and allow for foreign investor participation albeit in a regulated manner. Going forward, political transitions in Qatar and Kuwait could delay implementation of key reforms.
###About Markaz
Kuwait Financial Centre 'Markaz', with total assets under management of over KD888 million as of March 31, 2012, 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.