GCC investor confidence index maintains positive trend

Investor confidence across GCC remained positive in July despite a decline, according to Shuaa Capital.

GCC investor confidence index was at 123 points, said the July 2009 GCC Investor Sentiment Report.

However, there has been a marked fall in confidence among international and regional investors towards the GCC, as seen by a 10.5-point drop in the GCC index.

Much of the decline in the GCC index can be attributed to this month's significant fall in sentiment towards the state of current economic conditions, said the report.

As expected, the biggest decline in investor confidence has been towards the UAE.

"The UAE Investor Confidence Index lost most of June's gains and fell from 123.8 to 113.9 points," it said.

"Oman, this month's only gainer in the region has now overtaken the UAE's index and is now ranked third in the GCC, hitting 119.2 points," added the report.

All other GCC countries saw a decline of between two per cent and five per cent in their indices.

However, Qatar and Saudi Arabia still command the highest level of investor confidence with their indices at 137.5 and 135.8 points respectively.

Kuwait's index is still the weakest in the region, and has actually dropped back below the 100-point mark this month, to 98.3 points. Bahrain's index declined 2.7 points to 107.1, said the Shuaa Capital report.

"It has proven to be a very challenging month for GCC economies, with the balance of respondents figure for investors' perception of current economic conditions sliding dramatically into the negative, with a reading that is down by more than 30 per cent this month to minus 15 per cent," it said.

"However, a decline in investor sentiment towards current market conditions has not been restricted to just the GCC this month, as the balance of respondents for global emerging markets declined 14 per cent to minus five per cent while Bric [Brazil, Russia, India and China] countries fell 9.1 per cent to 13.3 per cent," added the report.

The analysts at Shuaa Capital see current market perception driving much of decline.

"The significant slide in the GCC index was primarily driven by a 31.9 per cent fall to minus 15 per cent in the balance of investors' perceptions of current regional economic conditions," they wrote.

The UAE (minus 45 per cent) and Kuwait (minus 50 per cent) were the main contributors to this month's worsening perceptions of GCC's current economic conditions.

On the contrary, Qatar's economy is perceived to be most the robust, as investors are much more positive on the economy's current condition, recording a balance this month of 20 per cent.

Meanwhile, Bahrain saw only 6.7 per cent of investors positive on the economy, while due to a significantly high number of neutral responses (48.3 per cent), the balance was minus 26.7 per cent.

Investor's opinion of Saudi Arabia's current economic state is a similar story to last month and remains very much polarised, with 36.7 per cent having a positive view and 30 per cent holding a negative view resulting in a balance of 6.7 per cent.

Oman was predominantly "neutral" (60 per cent) and had a balance of minus 6.7 per cent, said the report.

Despite the declines, Shuaa Capital stated investor confidence for GCC economies remains strong.

"The six-month investor outlook for the GCC economy remains positive this month, with a balance of 53.3 per cent, albeit lower than last month's 65.2 per cent.

"Despite the 11.8 per cent loss for the GCC, the six-month economic outlook for the region compares favourably against both Bric countries and global emerging markets, who both recorded slightly higher figures of 56.7 per cent and 55 per cent."

Much of this 11.8 per cent drop can be attributed to the UAE, which remained positive, but lost 15 per cent of its balance, slipping to 36.7 per cent.

Nearly all other GCC markets saw little change on investors' six-month outlook, with Saudi Arabia (58.3 per cent) and Qatar (58.3 per cent) jointly leading the way.

Oman (40 per cent) was the only country to see much movement on last month, gaining 8.5 per cent to 40 per cent. Bahrain (30 per cent), Kuwait (23.3 per cent) made up the rest of the region.

The report also highlighted that the UAE stock markets continue to be perceived as most undervalued. Stock markets across most of the GCC remain undervalued in the eyes of investors, although not to the extent of last month.

Once again, it is the UAE stock markets leading the way, with the Abu Dhabi Stock Exchange and the Nasdaq Dubai seen to offer the best opportunities for returns according to investors, with both exchanges 26.7 per cent undervalued on balance. This is despite a 12.7 per cent decrease on last month's response for Abu Dhabi.

Kuwait has seen a dramatic drop in investor sentiment towards its local stock market, falling 15.6 per cent on balance to minus 10 per cent indicating that overall, investors feel the stock market is actually overvalued.

Bahrain (3.3 per cent), Oman (11.7 per cent) and Qatar (20 per cent) saw minor falls of 6.8 per cent, 2.9 per cent and 4.7 per cent respectively, while the other Dubai market, the DFM, remained nearly unchanged with just a 0.3 per cent gain to 21.7 per cent.

Relatively, investors view GCC markets more positively than Western markets, although the gap is narrowing.

The FTSE (11.7 per cent), Dow Jones 30 (five per cent) and Eurostoxx 50 (6.7 per cent) all saw gains on last month balance by 16.2 per cent, 11.7 per cent and 14.5 per cent respectively.

The report mentioned that there is continued positive outlook for Saudi Arabia's Tadawul, Doha Stock Market and Abu Dhabi Stock Exchange.

Investors have retained their positive six-month outlook for regional stock markets, especially for the Saudi Arabian, Qatari and local UAE stock markets, which saw gains in between 5.6 per cent and 16.5 per cent.

The Tadawul is expected to perform the best, with 56.7 per cent on balance expecting it to rise. This is closely followed by the Doha Stock Market (51.7 per cent) and the Abu Dhabi Securities Exchange (46.7 per cent).

Other regional markets are also looking positive, with the DFM (36.7 per cent), Kuwait Stock Exchange (30 per cent) and Oman Stock Exchange (31.7 per cent) all with balance figures in the 30s.

The Bahrain Stock exchange is also looking relatively strong with 21.7 per cent, believing the performance of the stock exchange will improve by the end of the year.

While GCC stock markets are expected to see greater gains over the next six months than Western markets, survey respondents have been increasingly positive towards them in July.

The Dow Jones 30 (33.3 per cent), Eurostoxx 50 (23.3 per cent) and FTSE (23.3 per cent) all recorded an increase in positive outlook on last month of 21 per cent, 16.6 per cent and 11 per cent respectively.

Going sector-wise, real estate, construction and materials continue to struggle in the eyes of investors, with a balance similar to last month of minus 20 per cent.

Interestingly, banks and financial institutions have slipped into the negative on balance, falling by 12.2 per cent on last month to minus 10 per cent.

Other sectors to see significant declines in their six month outlook on profitability include consumer and retail (10.1 per cent), telecoms (16.9 per cent), media (15.8 per cent), technology (6.7 per cent) and utilities (10 per cent), said the report.

Pharmaceuticals are still seen as the most likely sector to see healthy profits over the next six months, although only gaining 1.3 per cent on last month to 31.7 per cent.

Heavy industries and transportation and logistics were in similar positions to last month. Investors are fairly neutral on the heavy industries at five per cent and slightly positive on transportation and logistics with 16.7 per cent.

Interestingly, opinion is very much split for three of the sectors with consumer and retail, heavy industries and telecoms and media seeing similar numbers of investors expecting a fall in profits as those who expect a rise.

Also worth noting was the particularly high number of investors expecting no change in the profits of pharmaceuticals, telecoms, media and technology and utilities.

Over the next six months, the price of oil and the euro are expected to make gains, according to the participants.

Meanwhile, the price of oil is expected to rise, albeit not quite as strong as last month, with a decline of 8.8 per cent on June's balance to 31.7 per cent.

It is interesting to note that the number of respondents expecting the oil price to rise has fallen consistently by about 10 per cent per month since April.

The biggest positive mover on June's results was the dollar, which is still expected to decline by the end of the year with minus 16.7 per cent on balance, although this is a big change on last month's balance, which was minus 46.1 per cent.

Investors are more bearish this month on the gold price, which saw a decrease on its balance of 30.4 per cent to a fairly neutral 6.7 per cent.

More investors also believe that sterling will decline, with a balance of respondents of minus 6.7 per cent, representing a 7.8 per cent decline on June's balance figure.

The report also stated that GCC countries are the most likely destination for investors over the next six months.

Investors plan to invest in the GCC, despite a 3.2 per cent drop on last month to 35 per cent. Global emerging markets and Bric countries followed closely behind with 33.3 per cent and 31.7 per cent on balance respectively.

Saudi Arabia and Qatar continue to lead the way within the GCC, with on balance figures of 30 per cent and 10 per cent. Saudi made a slight increase of three per cent on last month while Qatar dropped eight per cent.

The UAE has seen a 10.8 per cent decline on last month, although the balance figure is still positive at 8.3 per cent.

While Kuwait (minus 20 per cent) and Oman ( minus five per cent) still have a negative balance, they had gains of 8.1 per cent and 9.6 per cent respectively on June's report.

Investors still remain unconfident towards investing in Bahrain, with a balance of respondents figure of minus 16.7 per cent.

Petrochemical, telecoms, media and technology are likely sectors for investment. When investors were asked which sector they were most like to invest in over the next six months, petrochemicals led the way with a balance of respondents figure of 11.7 per cent.

This was closely followed by telecoms, media and technology.

Investors were also positive on transportation and logistics.

Pharmaceuticals (minus five per cent), real estate, construction and materials (3.3 per cent) and utilities (zero per cent) all have investors fairly split on their decisions.

In the negative are banks and financial institutions (minus 16.7 per cent), consumer and retail (minus 15 per cent) and heavy industries ( minus 8.3 per cent).

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