Sico releases its second half of 2009 outlook for GCC markets

The report highlights that post 1Q09, a mild revival has been observed in the global macroeconomic picture and an improvement in global business confidence.

This has triggered significant overall reductions in bank borrowing costs, improvement in liquidity and an increase in investor risk appetite, which has and is likely to continue to augment interest in equity markets.

Nevertheless, it still believes that the recessionary fears and their potential effects are far from over, albeit the unprecedented stimulus packages and concerted efforts seem to have succeeded in averting further weakness in the global economy.

Consequent to the improvement in the global economic outlook, oil prices have more than doubled after touching a low of $33bn in December 2008. The price rise of hydrocarbons alleviated concerns about budget deficits, liquidity, government support, and major slow-downs in development activities by regional governments, according to Sico.

It is important to note that, each USD increment in average oil price will result in more than $5.0bn in additional annual revenues for the Gulf countries. However the paper does underline the volatility of oil prices, and forecasts that there is with a more than average probability that the barrel price of WTI declining from their end of June highs to a $50 - $60 range for the next quarter.

Sico highlights that investors are now better equipped to make investment decisions having glimpsed 1Q09 results, while factoring the likely bottoming out of property and commodity prices and an improvement in broader markets. SICO's sample of listed GCC companies reported profits of $8.1bn in 1Q09, compared to a loss of $4.6bn in 4Q08, indicating a significant improvement in performance on a QoQ basis. However, profits are still significantly lower compared to the first three quarters of 2008, which saw an average quarterly profit of $15.1bn.

The research note outlines the case that the regional equity markets are yet to price in the additional liquidity emanating into the region driven by the higher oil prices.

The note views higher oil price levels seen during the recent months, a period of uncertainty and economic slowdown, as a good support to the long-term prospects of the region. At the same time, the uncertainty surrounding the impact of corporate debt defaults in the region will continue to have a negative impact on the short-term prospects, as higher NPLs during 2Q09 from regional banks will adversely affect overall sentiment.

Sico sees any fall in the regional equity market due to weaker 2Q09 results or the summer lull as a good entry point for long term investors as Sico expects more affirmative triggers from global markets during 2H09.

Securities & Investment Company is a wholesale bank offering a selective range of investment banking services, including asset management, brokerage, corporate finance and market-making, on a regional basis and with a particular emphasis on Bahrain. Through its wholly owned subsidiary, Sico Fund Services Company (SFS), Sico also provides custody and fund administration services.

As of March 31st 2009, Sico reported total assets of BD85.3m, with shareholders' equity of BD49.5m. Sico's shares have been listed on the Bahrain Stock Exchange since May 2003.