Gulf markets rise ahead of Saudi budget

Gulf stock markets resumed rising on Wednesday ahead of the release of Saudi Arabia's 2015 state budget, which is expected to be announced on Thursday and show the government keeping spending at high levels despite the plunge of oil prices.

Regional bourses collapsed in early December because of fears that reduced oil export revenues would prompt Gulf governments to scale back economic development projects, hurting corporate profits.

But it has become clear in the past week that sharp cut-backs are unlikely, with the possible exception of the two smallest and fiscally weakest countries in the Gulf Cooperation Council, Bahrain and Oman.

The Saudi finance minister ruled out major spending cuts, and the country's ‘Al Madina’ newspaper, quoting unnamed sources, reported that the 2015 budget would actually contain a marginal rise in spending, with the government using its huge fiscal reserves to cover a deficit.

So stock market sentiment has improved considerably in recent days, also helped by the at least temporary stabilisation of the Brent crude oil price above $60 a barrel.

As the panic has eased, attention has returned to valuations, which look much more attractive in the wake of the markets' plunge and are now close to or in line with those in other emerging markets, fund managers say.

"The recent market correction brought down valuations of a number of well-managed companies to attractive levels, especially considering underlying earnings growth," Sachin Mohindra, portfolio manager at Abu Dhabi's Invest AD, said in a note.

"This makes us optimistic about the prospects of GCC equity markets in 2015."

He added that he was particularly bullish on companies highly exposed to domestic demand in GCC countries, since "the recent correction has been brutal and has not differentiated between stocks based on company fundamentals."

The main Saudi index climbed 1.8 per cent to 8,700 points, ending on top of chart resistance formed by its downtrend line from September. A further rise on Thursday would break the resistance and be technically bullish.

The rise was broad-based; property developer Dar Al Arkan  climbed 2.2 per cent while the biggest bank, National Commercial Bank, gained 1.1 per cent.

Saudi British Bank surged 7.2 per cent after its board said it was recommending a bonus share issue to boost capital by 50 per cent, funding it with retained earnings and reserves, and a cash dividend of 1.05 riyals per share for 2014, up from 1.0 riyal in 2013.

Beaten-down insurance stocks remained a major theme, with Malath Cooperative Insurance and Reinsurance jumping its 10 percent daily limit.

DUBAI

Dubai's main index surged 3.0 per cent, though trading volume dropped by a third to a moderate level, indicating some investors were withdrawing from the market for year-end holidays.
Property stocks again dominated trading, with Deyaar gaining 6.4 per cent and Emaar Properties up 2.9 per cent.

Very strong U.S. gross domestic product data announced on Tuesday may bring forward the time when U.S. interest rates start to rise next year, forcing Gulf central banks with their currency pegs to follow suit; this could dampen Dubai's property market, but for now at least, investors seem to view rapid U.S. growth as positive for global demand for Dubai real estate.

The Abu Dhabi market rose 1.4 per cent, also led by property stocks; Eshraq Properties, the most heavily traded company, rocketed its 15 per cent daily limit.

Qatar climbed 1.4 per cent with Barwa Real Estate , the most heavily traded stock, up 6.7 per cent.

But Islamic Holding, an investment company, again plunged its daily 10 per cent limit to 98.10 riyals; it has tumbled from 222.70 riyals on December 11 as a bubble in the stock price has apparently burst.

The stock is still up 113 per cent year-to-date and its trailing price/earnings ratio is about 30 times, according to Thomson Reuters data, compared to under 20 for comparable stocks in the investment banking and brokerage space.

WEDNESDAY'S HIGHLIGHTS

DUBAI
* The index rose 3.0 per cent to 3,833 points.

ABU DHABI
* The index gained 1.4 per cent to 4,534 points.

SAUDI ARABIA
* The index climbed 1.8 per cent to 8,700 points.

QATAR
* The index rose 1.4 per cent to 12,358 points.

EGYPT
* The index gained 0.6 per cent to 8,766 points.

OMAN
* The index rose 2.5 per cent to 6,377 points.

KUWAIT
* The index edged up 0.7 per cent to 6,547 points.

BAHRAIN
* The index inched up 0.4 per cent to 1,407 points. 

 

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