MENA equity markets end 2008 on mixed note

With losses of 72% in 2008, the Dubai Financial Market (DFM) was the worst performing market, while its neighbors in Abu Dhabi performed relatively better with a loss of 48% for the year.

A strong rally over the month in the Qatari market reduced its 2008 losses to around 28%, making it the best performing GCC market and the best regional market besides the smaller markets of Morocco, Tunis and Jordan. A small rally in the Saudi market was a welcome relief, but the largest regional market nevertheless ended December some 56% lower on the year.

The Saudi Arabian market ended 2008 with a small monthly gain largely due to positive performances by large-cap petrochemical stocks, as well as a gain by Saudi Telecom. Investor sentiment was boosted by the announcement of a record 475 billion Riyal ($127bn) budget and government pledge to support economic growth through increased spending on infrastructure investment and job creation. With current valuations at under nine times 2008 earnings, a dividend yield of close to 5% and an expansionary fiscal and monetary policy, Saudi equities are well positioned for any improvement in the global economic environment.

UAE equities performance in December took their 2008 performance to a loss of close to 70%. Dubai Financial markets listed stocks bore the brunt of the losses over the month and year with real estate and banking shares taking the hardest blow. In Abu Dhabi leading stocks such as National Bank of Abu Dhabi, Etisalat and Al Dar lost 15% - 27% of their value while Abu Dhabi Commercial Bank lost 33%.

Valuations of UAE listed equities - at around five times 2008 earnings - are the lowest in the region and amongst the most attractive globally. Lingering uncertainties surrounding the announced restructuring of the mortgage sector and a decimated domestic investor base are precluding a near-term recovery in the market, despite extremely attractive valuations. A record Dhs42.2bn ($11.5bn) federal budget for 2009 - a 21% increase over 2008 - has been announced and Dubai will be announcing its 2009 budget soon, with leading officials indicating that it will be larger than 2008's record Dhs135bon ($37bn).

The Kuwaiti stock exchange ended a tumultuous month and quarter with a loss of close to 12% taking its 2008 performance to 38% after having been up close to 25% for most of the first half of the year. Valuations of Kuwaiti stocks are some of the most attractive in the region and the central bank has embarked on an aggressive monetary easing with lower interest rates and reserve requirements. Continuing fears over the investment sector and lingering political squabbles are weighing on investors, however, and delaying a recovery despite the attractive valuations and official support for the market.

The best performing regional market over the month, with gains of close to 13% was the Qatari market. The market was boosted by 28% gain by Industries Qatar and a 17% gain by Qatar National Bank. The market has been exhibiting sensitivity to both the global environment and oil prices and has benefited from the improvement of both these factors over the month, and the Qatari economy is expected to be one of the fastest growing global economies over the next few years.

The Oman market ended December with a 13% loss on the month, taking its 2008 losses to close to 40% with losses spread across the market. Valuations of Omani stocks are in line with the regional average and the market awaits fourth quarter results from leading companies to determine whether current valuations are attractive.

Driven by very strong performances by Orascom Telecom and Commercial International Bank, Egypt, the largest regional market outside GCC, ended the year with a monthly gain of close to 9%. The macro-economic picture for the Egyptian economy also seems a bit brighter as inflationary pressures have receded, giving the government some room to implement monetary stimulus via lower interest rates. A government fiscal stimulus package to support the economy also helped to revive sentiment and a recovery from these very cheap levels can be expected as long as the global economic environment does not deteriorate further.