Gulf shares will rebound soon, say finance experts

The impact of falling oil prices on GCC capital markets is unlikely to continue over the longer term thanks to continued high government spending and underlying investments in the oil sector, according to ICAEW, a membership organisation of the accountancy and finance profession.

Several ICAEW members and guests gathered in Dubai last week to discuss the impact of the oil price correction on capital markets.

“There is no doubt capital markets were affected by the oil price correction, but this should be short-lived as underlying investment in the sector continues and non-oil businesses remain attractive investment targets,” said David Petrie, Head of Corporate Finance Faculty at ICAEW.

“There may be a vested interest for GCC oil producers if oil prices trend down even further – this is resulting in shut downs and other commercial inefficiencies in those parts of the world where production costs are much higher, say over $100 per barrel,” he explained.

Speakers agreed that the oil price could go down to $35 per barrel by July 2015, but is expected to rise again to its normal price between $65 and $75 per barrel. The panel also agreed that certain IPOs may be delayed in the short term as liquidity in the market is tight and investors are hesitant, but this will improve with market sentiment and as the oil sector recovers.

In his keynote speech, the Right Honourable the Lord Mayor of the City of London, Alderman Alan Yarrow, said: “The GCC states are fully aware they need to reduce their reliance on hydrocarbons, with the topic in the spotlight over the volatility of oil prices. That is why the Gulf states have put in place bold and ambitious infrastructure plans that will look to diversify their economies into a wide number of sectors.”

Delegates at the event agreed that what matters most for investors is not oil prices but governments’ ability and willingness to spend in non-oil sectors. GCC governments’ spending is high, at least for the medium term, and they have plenty of reserves that can support their spending plans if needed, it was discussed.

Event attendees agreed that the oil price correction provided investment opportunities in other sectors such as petrochemicals, trading, light manufacturing, aviation and logistics, and renewable energy.

“The recent reduction in oil prices could drive companies in the energy sector to dispose of more non-core assets in order to shore up their main business. As a virtual data room provider, we think this could also lead to an increase in M&A deals, including possible takeover bids for more ‘debt-laden’ oil & gas companies,” said Alexander Gross, Director at Merrill DataSite.

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