The economic performance of the GCC countries is robust with an expected growth of 6% for the region, a specialised economic report said on Sunday.
The report, compiled by Gulf Investment Corporation, highlighted two forces which helped the GCC to shoulder the weight of the global sluggishness.
“First, is the continued expansive fiscal policy on an assortment of investment projects as well as current expenditure that act as safety nets for consumers and wage earners. Secondly, firm oil prices and increased oil and natural gas exports are helping the economies achieve sustained economic growth and achieve robust surpluses in trade and fiscal accounts,” the report said.
It also noted that the most recent OAPEC report revealed that the combined income earned from oil exports for the Arab economies reached $625bn in 2011, from $450bn in 2010, with expectations of another 10% increase for 2012, on account of larger export volumes at fairly firm oil prices.
The reported shed lights on a rising energy consumption in the GCC economies, with demand for electric power growing at around 9% per year in Saudi Arabia.
“Energy use by the industrial sectors is also driven by the state of health in the global economy, as the most energy-intensive industries in the GCC, such as Aluminum and Petrochemical producers are largely export-oriented. This explains why the global recession dampened energy use in the GCC especially during 2009,” the findings said.
The report disclosed that the overall GCC equity markets did not track global performance during the period as SP GCC Composite Index lost 1.29% for the month mainly driven by significant decline in Saudi Arabia. Kuwait was the top performer with significant improvement in overall trading activity as the government announced measures to increase economic activity. With regard to oil prices, the report data showed that Brent Crude was down by 1.46% while WTI slipped 4.72% on the back of weaker global demand forecast.
“Weakness in oil prices coupled with lack of optimism in Q3 earnings, likely resulted in Saudi Arabia’s Tadawul to close 4.19% during the month of September. Major sectors including Banks and Petrochemicals lost 14% and 3.85% respectively,” the report disclosed.
Kuwait’s Weighted Index edged ahead in September after continued losses during the year, rising 4.45%, making it the best performing market in the GCC.
“Blue Chip companies fared better as the recently introduced Kuwait 15 Index rose +4.91 percent after the Amir called for immediate steps to be taken to support the economy while the government launched a program to support the stock market,” it noted.
In the UAE, both Abu Dhabi’s ADI and Dubai’s DFM gained 1.71% and 2% respectively. ADI performance was contributed mostly by Real Estate and Banks as fundaments improved for the sector. In Dubai, financial and services sectors ended the month higher returning 6.39% and 4.92% respectively.
In Qatar, the QE index was up marginally by 0.31% for the following month. The Industrial sector was the top performer, adding 0.95%, while the Services sector gained 0.32%. Qatar lags behind the overall region on YTD with total return of 3.06% compared to SP GCC of 3.34%.
Oman’s MSM index also lagged the GCC markets growing at merely 0.99%. Performance was impacted by financial sector which slipped 1.47% during the month. However, industrial and services sectors rose by 3.67% and 3.93% supporting the overall index.
Bahrain’s BSE Index remains relatively flat adding only 0.09% to the index. Industrial sector was the only major positive contributor to the index and increased by +4.31 percent. Investment Sector and Banks continued to decline pulling the index lower. GCC Stock Markets have largely ignored the global buoyancy regarding the US asset purchase program mainly due to concerns about, the slowdown in China and, the European debt crisis. In addition, the market seems to be waiting for Q3 results announcements due in October.
The report revealed that banks are likely to remain in the limelight as asset size continues to increase in Saudi Arabia and Qatar. Less than encouraging signs in oil demand from emerging economies and expectations of weaker Q3 earnings will continue to weigh down on petrochemicals.
“In UAE, improvement in real estate sector will support the market as fundamentals for the segment continue to show signs of improvement. In Kuwait, the Government plans to support the Kuwait stock market directly and indirectly is likely to continue to support the local index in the coming month mainly through blue chip companies,” the report claimed.
The GIC report also recommended Investment Grade over High Volatility names, till the global uncertainty recedes.
“We also recommend more defensive credits, primarily out of Qatar, Saudi and Abu Dhabi. We continue to like Quasi Sovereign names especially in Abu Dhabi, given the attractive spread pick up over sovereign. Given the sharp run up in the longer end of the curve and global uncertainty, we suggest remaining on the ST-MT end of the curve. Spread curves for some of the Investment grade names are trading flat, providing an opportunity for long short strategies to take advantage of possible curve steepening.
“We also suggest to selectively look at High Volatility space with strong franchise value, profitable business model and stable cash flow,” it concluded.