Markaz: GCC stocks in financial and real estate sectors most impacted by COVID-19, consumer non-cyclicals and utilities most resilient


Kuwait Financial Centre “Markaz” recently released its report titled ‘Pandemic Resistant GCC Stocks’. Markaz report stated that, the year 2020 has been a difficult one for GCC Stock markets and companies. Coronavirus outbreak had the investors reeling as markets globally plunged. GCC markets were no different as the benchmark index - S&P GCC Composite lost 15% for the year until July-end. As investors await earnings report to understand the full picture of business implications, Markaz analyzed the stock performance to separate the winners and losers in the GCC markets.

In the midst of the coronavirus pandemic, a minority of GCC Companies have outperformed the index. They tend to be in sectors considered as essentials such as consumer non-cyclicals, utilities, healthcare, and telecom. Many of the companies in these sectors have seen their revenues and net income increase in the first quarter of this year over last year. All of these sectors are driven by consumption needs that are resilient and are not dependent on the vagaries of the business cycle. In addition, sectors like consumer non-cyclicals cover consumer-oriented businesses like food and retail. Companies in the utilities and telecom sector also benefited due to their essential nature and with many GCC organizations instituting ‘working from home’ arrangements. The lockdowns imposed in the GCC countries have not affected them and have instead resulted in increased revenues for these companies. As a result, investors have flocked to stocks in these sectors.

Companies that were negatively impacted by the COVID-19 led market drawdown are mostly concentrated in sectors like financials, real estate, energy, industrials and basic materials. Banks, non-banking financial institutions (NBFCs), investment companies and real estate investment firms all have been hit hard by the COVID-19 crisis as investment losses were recognized and income streams (rentals and dividends) took a hit. For banks, interest income has suffered due to moratorium on loans extended. Reduced transportation as countries shut down borders affected the oil demand from transportation sector and exacerbated the existing demand-supply mismatch, resulting in oil price crash. Oil and Gas companies including that of petrochemicals stand impacted due to reduced volume and lower price realizations. Basic materials sector consisting mainly of companies in the cements, construction materials and chemicals have been affected at the operational level due to challenges in logistics and supply chain disruptions. Lockdowns have affected the business of logistics, infrastructure, aviation and manufacturing companies.