Cautious optimism boosts Gulf business confidence

Business people across the GCC are taking a more positive view of the future for the first time since October 2008, said a new survey.

On almost all measures, the region's businesses see better times ahead: on turnover, profit margins and meeting their targets for the year. There is a marked increase in optimism since the first quarter of this year, said the quarterly HSBC Gulf Business Confidence Index, compiled by YouGov.

The second quarter survey covered 1,823 business people in all six countries of the GCC. The overall index has risen from 74.8 to 79.4, a rise of almost five points, the largest movement of the index in a single quarter since the major collapse in confidence that took place in the fourth quarter of 2008.

Industry players said there seems to be light at the end of the tunnel but we should proceed with a lot of caution.

On the improved confidence level in the market, Roberta Gamba, Head of Portfolio Construction Emea for JP Morgan's Private Bank said: "JP Morgan's Private Bank is cautiously more optimistic with respect to its market outlook, even if we don't think we are out of the woods yet."

Firas Mallah, Head of the Middle East Office for Dexia Asset Management, said there is a wave of optimism among wealth managers and private bankers about financial market recovery in the region, but caution is the word to watch out for.

"The key word remains cautious. I believe that in current time, nobody would like to be over-optimistic, especially prematurely. Everybody has in mind the constant and almost unanimous message from economists worldwide: the recovery, if it started, will be slow and gradual. If it hasn't started, that doesn't change the fact that when it does start it will be slow and gradual. Optimism is good and is a necessary component for recovery, but only when administered with a healthy dose of investment logic, coupled with good bargain hunting of underpriced investment opportunities. And the market is filled with those at present, across all asset classes," he told Emirates Business.

Even the HSBC survey said an air of caution remains in the companies of the region.

"The results of the second-quarter survey may be described as cautiously optimistic," said Tim Reid, Co-Head of Global Banking, HSBC Middle East. "Business has been through a tough nine months, but some market participants are now seeing light at the end of the tunnel. The mood would appear to be that, while there remains much to be cautious about, things do not appear to be deteriorating. It's a far cry from the boom time of 2007 and early 2008, but most believe the worst is over," said Reid.

Seventeen per cent, or almost one in five, are pessimistic about their revenue streams, while one in three (34 per cent) predict the economic slowdown will continue for at least another two years, as per the HSBC survey results. "This indicates the uncertainty that still exists in the market, and the consequent cautious view of the future," reveals the survey. About 28 per cent of the surveyed companies see an increase in profits in 2009, up from 23 per cent in the first quarter and 48 per cent predict a better performance from their company in the next quarter, compared to 42 per cent in the first quarter.

However, businesses appear reluctant to increase investment budgets.

Thirty four per cent see the oil price as having a positive effect on their business, compared to 26 per cent in the first quarter – the highest proportion, reflecting the increased volatility of the oil price and the rise in oil prices quarter-on-quarter, said the survey.
A new question asked in the survey focused on which parts of the world companies conducted trade with, and more than half of them (57 per cent) confirmed that the Middle East is their principal trading region, but one in three (33 per cent) predicted this market will slow in 2009 and 33 per cent believe cross-border trade will slow down.

On human resources, while 27 per cent said they had cut jobs, 29 per cent claimed to have increased their labour force.

Looking forward, 30 per cent intend to hire, with only 20 per cent predicting further cuts. On each country in the bloc, positive increase has been seen across all countries except Bahrain with eight points plus for UAE, Kuwait and Oman and 4 points plus for Qatar and Saudi Arabia. Having touched a low of 57.9 points in the first quarter of 2009, the UAE index has moved up eight points. The Saudi index reflects a positive change of 4.3 points.

Keep up with the latest business news from the region with the daily Emirates Business 24|7 newsletter. To subscribe to the newsletter, please click here.