(MENAFN - Khaleej Times) Driven by a resurgent real estate sector, and underpinned by robust banking and financial services, the Gulf stock markets are poised to record 12 per cent earnings growth in 2014, analysts said.
The Gulf market outlook for 2014, based on earnings potential, market liquidity, valuation attraction, economic factors and geopolitical developments in each individual country, said corporate earnings which have been moderate for the past years in Saudi Arabia and Qatar could surprise on the positive side in 2014.
The market outlook report by Kuwait Financial Centre 'Markaz' estimated full year earnings growth in 2013 at 10 per cent for GCC region. "Going into 2014, we believe real estate sector would be the driving factor underpinned by banking and financial services. Petrochemicals sector is expected to remain muted in 2014."
Economic growth in GCC is expected to sustain at four per cent in 2014, driven largely by social spending, initiation of infrastructure projects and large-scale subsidies amidst unrest in neighboring nations, said Markaz.
"At the end of first half of 2013, we had neutral views on Saudi Arabia and Kuwait and positive views on the UAE, Qatar, Oman and Bahrain. We were mostly right except for Saudi Arabia, which rallied higher as talks of regulatory reforms to open up the equity market for foreign investor's direct participation boosted sentiments. The UAE markets, Dubai and Abu Dhabi, though positive surpassed our expectations," said the report.
In 2013, GCC markets had a phenomenal year with most markets registering double-digit gains. Performance of GCC markets was on par with developed markets and better than emerging markets. The S&P GCC Composite index, said Markaz.
UAE markets did exceptionally well in 2013 on the back of an upgrade in status to emerging market by MSCI and S&P Dow Jones. Dubai index producing phenomenal returns of 107.7 per cent while Abu Dhabi index registered strong gains of 63.1 per cent in 2013.
"Strong expansion in price earnings multiple amidst robust earnings growth on the back of healthy rebound in real estate markets and revival of business confidence sustained the rally," said Markaz.
According to Ernst & Young, IPO activity in the region is expected to remain on a firm footing in 2014 following a strong uptick in listings in the last quarter of 2013.
Better market fundamentals are expected to support a solid start to 2014 for new offerings, said Phil Gandier, Mena transaction advisory services leader. Markaz noted that the highlight of 2013 was the long expected MSCI upgrade of the UAE and Qatar to Emerging Market status. The move is likely to take effect in second quarter of 2014, with the UAE accounting for 0.4 per cent of the index and Qatar accounting for 0.45 per cent. Introduction of mortgage law in Saudi Arabia; market friendly initiatives taken by new CMA head, including synchronising Saudi market timings in line with other GCC markets and review of subsidies program in Kuwait to rationalise expenditures and ensure sustainability of fiscal policy for the long-term were significant positive developments, the report noted.
Increasing oil production elsewhere and easing of sanctions in Iran is further expected to put downward pressures on global oil price, said Markaz. "With most GCC nations holding back their investments to ramp up production capacity, oil-based real gross domestic product, or GDP, growth is expected to slump from 5.4 per cent in 2012 to 0.4 per cent in 2013."
Though the breakeven price of oil is still much lower than the prevailing market price, the rates at which the breakeven price had increased over the past two years is alarming, particularly in the case of Kuwait (32.6 per cent), Qatar (44.2 per cent) and Oman (19 per cent). Ongoing shale gas revolution in US, slowdown in commodity super cycle and a sluggish global outlook presents immense challenges for GCC region which has been excessively reliant on oil receipts to fund their economy in the long term.
Markaz expect Inflation in GCC is expected to rise only marginally from 2013 levels, as commodity prices, especially food, are relatively benign.
"Fiscal surplus though robust is expected to be on the declining trend, as government expenditures keep raising while oil revenues remain moderate. Valuation, on a standalone basis, remains cheap in Oman and Bahrain. Though UAE witnessed a strong rally, its P/E multiple when viewed in conjunction with expected earnings growth remains attractive," it said.