GCC stocks trading at attractive levels: Analysts

The Gulf Cooperation Council (GCC) stocks are currently trading at attractive levels because their valuations are lower than that of similar key emerging markets, according to a monthly market update by Kuwait’s Global Investment House.

“Within GCC, outlook for Saudi Arabia appears positive, followed by Qatar, owing to its current compelling valuations. In terms of the one-year forward Price Earnings ratio, the six bourses traded at 9.4–13.0x during the month, significantly below the GCC region’s historic averages,” Global’s analysts Fouad Fahmi Darwish and Rasha Al-Qenaei said in the report.

Long-term optimism remained intact, following the inclusion of the three largest GCC markets – the UAE and Qatar in May 2014 and Saudi Arabia expected in H1 2017 – on the MSCI Emerging Markets Index, the report said.

Regional bourses end October in red

Led by the Dubai Financial Market (DFM), all GCC stock markets slipped in October due to decline in oil prices.

DFM lost the most nearly 10 per cent month-on-month, followed by Saudi Arabia’s TASI (-7.6%), Muscat’s MSM30 (-6.8%), Abu Dhabi’s ADX (-4.8%), Kuwait’s KSE (-3.4%), Bahrain’s BSE (-2.2%) and Qatar’s QE (-1.7%).

“Falling oil prices coupled with downward revision in GDP growth forecasts of Mena by IMF sparked a sell-off across GCC markets. Share prices in GCC markets dropped, with investors spooked over global growth fears. Furthermore, amidst the ongoing concerns, investors booked profit to invest in the NCB IPO which closed on November 2, 2014 oversubscribing by 16 times. Nevertheless, markets recovered a bit towards the end of October led by decent set of corporate earnings results and improving sign of US economy with FED’s ending of Bond buying,” Global’s analysts said in the monthly report.

The market capitalisation of all indices plunged during the month. The market capitalization of GCC bourses declined 4.6% MoM to $1,116.7 billion in October.

At $544.5 billion, Saudi Arabia was the largest contributor, followed by Abu Dhabi and Dubai ($219.1bn or 19.6%) and Qatar ($199.4bn or 17.9%). Kuwait, Oman, and Bahrain together contributed $153.8bn.

Trading declines in October

Overall, trading in GCC markets declined in October. Volume traded plunged 19.4% MoM; all markets, except Bahrain, Oman, and the UAE, declined MoM, Global said.

Value traded fell 30.5% MoM, primarily due to a decline in Saudi Arabia. Total value traded in Bahrain and Oman rose 77.2% MoM and 3.6% MoM, respectively; however, trading value in all other GCC markets fell during the month. Saudi Arabia was the largest contributor ($35.4bn) to GCC’s total trading value ($47.8bn).

Among sectoral indices, petrochemicals was the chief laggards due to poor outlook for oil prices across the globe.

Saudi Arabia’s market recorded substantial profit booking due to the ongoing subscription of the NCB IPO. However, the outlook for the Saudi market is stable due to increased foreign institutional investor (FII) activities on the bourse. Furthermore, Saudi Arabia plans to permit off-market trading of suspended or delisted shares. The Dubai market remained unstable due to concerns over oil prices.

Mixed set of result in the bourses failed to attract investor attention. However, in the previous month, S&P upgraded the UAE market’s status to emerging from frontier, thereby boosting investor sentiment and could act as a catalyst for the coming months.

The Qatar market remained under pressure due to huge profit booking in Telecom and Industrials sectors before the monthly close. Other regional markets – Bahrain, Oman, and Kuwait – followed their GCC peers during the month. Kuwait was also under pressure due to the fall in oil prices, which may impact its oil revenues.

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