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Good news: GCC stocks riding high this month

Abu Dhabi and Dubai were the best performing stocks in the MENA region with an increase of 3.9 per cent and 2.5 per cent.

Global markets ended the first week of April with a mixed performance, with US markets being down for the week. The Dow, S&P 500 and Nasdaq were down by 0.03 per cent, 0.30 per cent and 0.33 per cent respectively.

European markets were mostly up for the week, with FTSE 100 and CAC 40 rising by 0.36 per cent and 0.25 per cent respectively over the week, while Stoxx 50 was down by 0.15 per cent over the same period. On the other hand, and as expected oil’s reaction to the increased tension on the geopolitical scene was positive, crude oil ended the week at $55.24 per barrel while WTI reached $52.24 a barrel rising by 3.19 per cent and 3.24 per cent respectively over the week.

On the regional front, the first week of April was positive for most of the regional markets except for Bahrain which ended the week lower by 0.2 per cent. The best performing market in the region was Abu Dhabi, which rose by 3.9 per cent led by the NBAD and FGB merger which was effective on April 2nd. Dubai came in second place with an increase of 2.5 per cent over the week followed by Saudi Arabia and Oman where each rose by 1.1 per cent. Egypt and Qatar came next with each gaining 0.8 per cent and 0.6 per cent respectively over the week, while Kuwait was flat for the same period.

Despite the high correlation between oil prices and regional markets’ performances, this time might be a bit different for the coming period with markets expected to trade range bound as caution drives general sentiments backed by the increase in geopolitical risks.

Success beyond oil

A report by the world’s largest wealth manager UBS said that consumer-driven companies operating in the GCC’s healthcare, financial services, energy and tourism sectors would become a key investment targets as the region’s economic transformation continues.

Currently, only UAE and Qatar equity markets are included in the MSCI Emerging Markets Index. But economists believe that privatisation of public assets and slackening of foreign ownership restrictions is likely to speed up the inclusion of additional regional markets over the next few years.

In the case of Saudi Arabia, given the kingdom’s recent decision to open equity markets to foreign investors, the bank believes local Saudi Arabian stocks, which account for half of the regional stock market capitalisation, could be included in the MSCI Emerging Markets index by as early as mid-2017.

Ali Janoudi, UBS group head for the Middle East and North Africa said: “As regional transformation programmes gather momentum, the Middle East’s major economies present increasingly attractive non-oil, long-term investment opportunities. What remains fundamental to the region’s future is its collective ability to further implement economic reform programmes and cultivate an ecosystem through ongoing market liberalisation that enables private sector growth and supports the acceleration of economic diversification.”

Michael Bolliger, head of Emerging Market Asset Allocation at UBS Wealth Management, said energy exports would remain an important source of growth and income for the years ahead, while the Middle East benefits from long term trends such as a growing population, increased urbanisation and – in select areas – aging, which offer attractive long-term opportunities for investors in the region that are less sensitive to political risks.

The UBS report cites regional healthcare as a particularly attractive sector for investment, as it remains a spending priority for governments in the Gulf.

The share of healthcare transactions in the region nearly tripled to 11 per cent of total deals in 2015 from four per cent in 2014, according to the MENA Private Equity Association.

GCC equity markets

According to Kamco Research, recovery in the GCC equity markets would be swifter in 2017, led by a faster pace of economic growth and corporate profitability that continues to remain resilient backed by higher government spending.

A recent report by Kamco said: “For 2017, we believe that corporate earnings would continue to remain a primary support for listed companies in the GCC, whereas oil prices are expected to remain range bound between $50 and $60 per barrel.”

In 2016, trading activity on the GCC exchanges fell for the second consecutive year although the overall value traded saw a strong rebound in November and December 2016 on investor optimism related to oil output pact. Nevertheless, value of shares traded in the GCC was at a five-year low of $388.2 billion, according to Kamco.