GCC Markets on a “rock & roll”

09/01/2008

Markaz research suggest increase in allocation to Kuwait December 2007 will go down as one of the months that GCC investors and fund managers would want to remember for a very long time to come.

Markaz research suggest increase in allocation to Kuwait December 2007 will go down as one of the months that GCC investors and fund managers would want to remember for a very long time to come. Gains were noticed across the markets with Saudi chipping in the largest ever monthly gain (18%) in its history. Other markets like UAE (10%) and Oman (7%) were not far behind. Relatively, Qatar and Kuwait had a quiet month. Market Review – December 2007 Saudi Arabia The Saudi market generated its highest monthly returns in 2007 in the month of December. This catapulted Saudi market to be the best performing market in 2007. The top five stocks (in terms of market cap) rose during the month primarily due to various corporate initiatives. Furthermore, the analysts forecast strong results for the fourth quarter supported the growth. SABIC and Saudi Telecom recorded monthly gains of 24.8% and 10.2%, respectively in their share prices. SABIC’s Board of Directors recommended to increase its share capital to SAR 30 Bn through bonus issue. In addition to this, the company announced a dividend of 2 riyals per share for H2 ’07. Analysts forecast SABIC’s Q4 ’07 profits to range between SAR 8.4 – SAR 9.1 Bn, compared to a Q4 ’06 net profit of SAR 6.1 Bn. While Saudi Telecom’s Q4 ’07 net profits are estimated in the range of SAR 3.2 – SAR 4 Bn. Al-Rajhi Bank, which rose 25.2% in December, plans to expand its footprint to Kuwaiti market. Samba Financial Group increased 19.2% in December. The Group entered into an agreement with National Chemical Carrier to finance SAR 1.5 Bn, which will be deployed to build 10 chemical tankers. Kuwait After recording monthly declines during October and November, the Kuwaiti markets turned around to post an increase of 4.2% in the month of December. On YTD basis Kuwaiti market recorded an increase of 24.7% in 2007. Kuwaiti market outperformed only the Bahraini market on YTD basis. Agility gained 9.5% during December after significant decline in November. Agility declined in November after it reported a 6% YoY decline in profits for the first nine-months of 2007. Agility agreed to acquire Medgroup, a Paris based logistics company in the month of December 2007. Agility also submitted its bid for USD 10 Bn Saudi rail projects. Furthermore, Agility announced its plans to expand its operations in Jordan. In line with its plans, the company opened a warehouse in Queen Alia International Airport Free Zone. Kuwait Finance House (KFIN) and National Industries Group also recorded MONTHLY gains of 7.5% and 7.8%, respectively. KFIN plans to establish a joint investment fund with Azerbaijan Investment Company. KFIN will hold 75% in the fund. Other heavyweights including Mobile Telecommunications Company and National Bank of Kuwait (NBK) also returned to positive territory during the month. In order to fund the acquisition of AlWatany Bank of Egypt and 40% of Istanbul-based Turkish Bank, NBK planned to raise KWD 409.6 Mn through rights issue. The issue received overwhelming response from existing investors and was oversubscribed to an extent of 145%. UAE UAE market continued to record significant movement and increased 9.8% in December after 7.0% decline in November and 20.2% increase in October. While Abu Dhabi index increased 9.3%, the Dubai market posted 10.8% returns in December. The top five companies (in terms of market cap) recorded an improvement in their performance in December. Emaar Properties (EMAAR) was the biggest gainer among the top five companies in UAE. EMAAR recorded an increase of 20.2% in December 2007. The company received approval from regulators to buy back 10% of its equity capital, which triggered an increase in the share prices. Furthermore, EMAAR Industries and Investments, a unit of EMAAR, plans to invest USD 82 Mn in 2008 for acquiring businesses. Emirates NBD (ENBD), which declined 17% in November, increased 11.5% in December. ENBD launched two new Shariah compliant products in December through Emirates Investment Services. Dubai Islamic Bank (DIB), which declined 11% in November, increased 9.5% in December. DIB plans to acquire Emirates and Sudan Bank through its unit Bank of Khartoum. Etisalat ended the month with an increase of 8.0%. The company’s shares increased 7.1% on 09 December 2007 following the speculation that the government will allow gulf investors to buy shares. Furthermore, the company expressed its intention to buy either Ajfa or MTC Touch. The company also intends to close the acquisition by the end of January 2008. National Bank of Abu Dhabi (NBAD) gained 3.2% in December. The share price increase was fuelled by the bank’s expectations to almost double its assets under management (AUM) to more than USD 3 Bn by 2009. Furthermore, the Bank plans to focus on infrastructure stocks and companies compliant to Islamic law, and intends to launch two funds targeting these stocks and companies. Qatar Following dismal Q3 ‘07 profits leading to a decline in Qatari market in November 2007, the market witnessed a MONTHLY increased of 2.3% in December. This increase can be primarily attributed to the strong performance of the heavyweight banking stocks. Qatar Commercial Bank and Qatar Islamic Bank recorded MONTHLY increase of 7.5% and 9.4%, respectively. However, Qatar National Bank decline 1.1% MONTHLY in December. Qatar Islamic Bank opened two new branches in December, which was in line with its strategy to expand its branch network to 35 within five years. Qatar Commercial Bank rose 7.5% during the month. The bank expanded its presence in UAE by acquiring 14.7% stake in the UAE based United Arab Bank for approximately USD 202 Mn. Qatar Commercial Bank further increased its stake in the United Arab Bank to 34.7% on 25 December 2007 and plans to increase its stake to 40%, going forward. However, Qatar National Bank registered a decline of 1.1% during the month. Industries Qatar declined 2.8% in December. The company entered into a USD 1.6 Bn 10-year loan agreement for a urea and ammonia making plant. With likely completion in 2010, the plant is expected to boost the company’s urea and ammonia production capabilities by 3,500 tons each. Qatar Telecom gained 1.2% during the month after a decline of 9.6% in November. The company’s performance was plagued by the highly leveraged balance sheet. Qatar Telecom had USD 5 Bn bank loans outstanding primarily due to the acquisitions. The company plans to continue with its acquisition spree. However, the company’s IPO plans are likely to de-leverage its balance sheet, thereby having a positive impact on its profitability going forward. Oman The Omani market significantly outperformed other GCC markets. Omani market continued to increase in December and recorded highest YTD gain of 61.9% in 2007. Omani market increased 7.0% in December. Bank Muscat, the leading company in terms of market capitalization, continued to witness an increase. The share price of the bank gained 20.8% in the month of December. Bank Muscat entered into a financing agreement of USD 167 Mn with Octal Petrochemicals for its new plastic and packaging unit. However, other heavy weights Omantel and Bank Dhofar declined 3.7% and 4.7%, respectively in December. Oman Oil Company plans to divest its stake in Oman Oil Marketing Company. Furthermore, Al Anwar Holdings announced its plans to double its stake to 20% in Taageer Finance Company. The company also completed the acquisition of 15% stake in Almondz Global Securities Limited. Bahrain The Bahraini market witnessed returns of 6.1% in December after 2.0% decline in November. Heavyweight Al Ahli United Bank increased 3.0% during the month. The bank completed the pre-emptive share offer in the month of December. Shares were 121% oversubscribed. Another heavyweight, Bahrain Telecom remained flat in December. The company announced its plans to launch 3G and 3.5G networks in the country on National Day. Bahrain Telecom will launch 3.5G technology in collaboration with its strategic partner Ericsson. National Bank of Bahrain reported a 17.1% YoY increase in its net profits to BD 33.6 Mn in the first nine months of 2007. Furthermore, Dubai Financial Group announced that it has finalized the acquisition of 60% stake in TAIB Bank. GCC funds displayed a dismal performance in November 2007 as compared to the previous month. Among Sharia compliant funds, SIB Gulf Industrial Companies Fund was the best performing fund with a monthly return of 11.80%.The top funds had higher exposure to Saudi Market. The benchmark S&P GCC Investible Sharia Index posted bleak returns of -2.68% for the month of November. It has to be noted that, in November four out of six markets in the GCC recorded negative returns. Among conventional funds GCC Equity Fund, managed by Saudi Investment Bank was at the forefront amongst conventional funds. Markaz research asset allocation model outperformed the benchmark by nearly 4% and rose 16.56% in December 2007 thanks to our overweight position in Saudi Arabia (84%) - the month’s best performing market. The model continues to out perform the strategic benchmark on a long-term basis. Looking forward for Jan 2008, the research suggests reduction of allocation to Saudi Arabia and increase Kuwait, Qatar and UAE. ### About Markaz Kuwait Financial Centre 'Markaz', with total assets under management of over KD1.4 billion as of September 30, 2007, 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 recently awarded a BBB+ corporate rating by Capital Intelligence Ltd.