Markaz: GCC markets fell by 2.7% during October despite oil prices’ surge


Kuwait Financial Centre “Markaz” recently released its Monthly Economic and Market commentary for October 2017. Markaz report stated that during October 2017, oil prices rebounded by 6.7% to close above USD 60/bbl, an event that failed to cheer the regional stock markets. The broader S&P GCC Composite Index fell by 2.7% during October 2017 on the backdrop of very strong global and emerging markets.

The latest IMF report is significant in that it is very positive on developed and emerging economies while it has subdued outlook for the MENA region despite global recovery. While global growth is projected at 3.7% for 2018, emerging market growth projected at 4.9% (2018), GCC growth for next year is expected at 2.2%. IMF notes that geopolitical tensions and conflicts continue to generate humanitarian and economic costs. It continues to stress on fiscal consolidation to maintain sustainability. Notable concerns include declining private credit growth, increasing non-performing loans, increasing youth unemployment, poor ease of doing business rankings, lack of trade openness and export diversity. Adoption of financial technology is spotted as an opportunity amidst these gloomy predictions.

Saudi Arabia continues to generate “big bang” news with the announcement of NEOM project. The debate about Saudi Aramco IPO still keeps international investment bankers busy with Saudi Arabia assuring that the planned IPO is still on track for 2018. Analysts and bankers are hopeful of Saudi Arabia’s inclusion in the MSCI Index in 2018, prompting them to open investment offices in Riyadh.

After a long hibernation, Kuwait is emerging from the woods as the best performing GCC market with a YTD return of 13% as of October 31. The announcement of Kuwait’s inclusion in the FTSE Emerging Market index from 2018 is a shot in the arm, along with various other regulatory progresses made. The rumoured merger of Kuwait Finance House and Ahli United Bank is on the discussion table of executives. Kuwait’s ease of doing business ranking by World Bank also improved six places from 102 to 96 (out of 190 countries). Implementation of National Agenda for Streamlining Business Environment (Tahseen program), a unified online system for companies’ registration, developed with technical support from World Bank had led to improvement in ease of starting business. Consequently, the number of procedures required to start a business reduced from 12 to 9 while the number of days dropped from 61 to 38. Reforms implemented by Ministry of Justice and Kuwait Municipality have resulted in halving the number of days to register property reduce from 70 to 35. The report acknowledged the improvements in enhancing the transparency of land administration system.

In Qatar, the banking sector has seen outflows close to the tune of USD 30bn since June this year. Following the financial sanctions imposed by Saudi-led quarter, non-resident deposits have reduced by USD 10bn and foreign interbank funding fell by USD 18bn. Thus, USD 28bn of external financing has been withdrawn from the Qatar financial system. To tide over the crisis, Qatar Investment Authority (QIA) is believed to have turned up as a lender of last resort by boosting deposits along with Qatar Central Bank (QCB) that has almost compensated for the withdrawal of foreign funding. Consequently, the willingness and demonstrated ability of QCB and QIA to stabilize banking system has been viewed favourably and the pressure on sovereign ratings has been alleviated. Recently, Standard & Poor’s (S&P) ratings removed Qatar from its negative watch list. However, the embargo shows no signs of ending. Qatar has been realigning its trade routes to bolster its economic security.

The party time for GCC debt market continues with sovereign and other issues totalling USD 60bn for 2017 while 2018 also promises to be another active year for bonds. Abu Dhabi sold its inaugural 30-year sovereign bond as part of USD 10bn triple tranche debt issue in early October ahead of U.S Fed meet to possibly effect another round of interest hike. Following the strong demand, Abu Dhabi tightened the pricing by 20 basis points (bps) across the three tranches. The Debt Management Offices of GCC countries are a busy and happening place for sure.

Oil price gained 6.7% for the month and ended the month above USD 60/bbl, as signs of glut appear to diminish. However, oil price gains have failed to enthuse investors. OPEC in its monthly report in October, for the third consecutive month since July, had raised its demand projection for crude next year. Further, it noted that the production-cutting deal with OPEC and non-OPEC producers is draining out the glut and that the market could flip into deficit next year. A stable oil price with potential upside, considering the extension of production curb deal bodes well for the GCC region.