Quotes: MENA   Enter Symbol: NewsLetter: Search: advanced

GCC(excluding Saudi Arabia)equity markets stumble on policy changes - expect higher volatility ahead  Join our daily free Newsletter

MENAFN Press - 20/08/2014
No. of Ratings : 0
Add to Mixx!



(MENAFN Press) The Saudi Arabian Index has moved steadily upwards (9%) over the last month. Saudi M&A activity is increasing with Savola officially announcing its interest in Kuwait Foods (Americana). The Saudi food and retail sectors have been outperformers this year ( 55% YTD) with consensus earnings growth forecast at 25% and 17% for 2014 and 2015, respectively. We like the defensive nature of the sector, with an average beta of 0.9 and would stay invested in Savola, the GCC's largest and most diversified food company.

The Qatar market briefly rallied last week in expectation of increased weightage in the MSCI Emerging Market Index (quarterly August review) but is currently pulling back. It was announced that Qatar National Bank and Industries Qatar, already up 18% and 10% respectively (from their lows in mid-2014) will have increased weightage in the MSCI indices, as their Foreign Ownership Limits have increased. However, the surprise Monday removal of a small-cap stock, Mesaieed from the MSCI EM Index stunned analysts and looks likely to raise volatility in the near term.

Regional credit flows well balanced

Flight to safety supported the bid for US treasuries with 10 year UST at 2.34% after touching 2.30% on Friday, 14th August. Over the week, 10 year UK gilts and the German bunds followed suit strengthening 16 bps and 10 bps, respectively. GCC bond and credit spreads were a tad wider given the sharp move in USD benchmark rates.

One of the most popular Sukuks “ Sovereign notes backed by the Ras Al Khaimah government matured (USD 400 mn, 8 % coupon due 22 July 2014). The month of September also awaits benchmark bond maturities from National Bank of Abu Dhabi, TAQA, ISDB (Islamic Development Bank) and Ras Laffan totaling USD 4 bn. We expect these proceeds to be reinvested, potentially tightening existing credits in the GCC space. Dubai 5 year CDS has already tightened to 160 bps.

Damac 5 year Sukuk saw renewed interest over the week, after the company reported positive earnings. TAQA bonds across the curve were well supported after headline news on asset sales as well as news on their not returning to debt capital markets at least till 2017. Regional laggards such as the Investment Corporation of Dubai (Sukuk), and the Emaar Malls group saw demand as investors picked up relative value in the 7 to 10 year space. The Tier 1 and Tier 2 UAE based credits were also in popular demand.

Rising geopolitical tension and slowing global growth should not be ignored

Geopolitical events continue to dominate and volatility increased with the CBOE Volatility Index spiking. There is not much change in the Gaza standoff, the Ukraine Russia conflict and warfare continues in Iraq and Syria. Equity markets, which had begun selling off last week, took a breather with President Putin striking a conciliatory tone. Russian companies have begun feeling the impact of sanctions, with Rosneft Oil being the first to request bailout funds.

As expected, Japan's economy shrank 6.8 % in the second quarter on the back of lower consumption, affected by a 3% increase in sales tax on 1st April. The German economy has contracted 0.2% while France remains in stagnation. China's bank lending has slowed and additionally Chinese banks are being forced to fortify their balance sheets against an expected rise in bad loans. Investors flew to the safety of the Yen and the Swiss Franc leading to a strengthening of both the currencies.

We remain overweight on Japan as we see an increased allocation by Japan's pension fund with equities generating higher returns than the lower yielding Japanese Government bonds. We are neutral on Europe until we see trade return to normal with Russia. However, we remain cautious on markets in the short term and until we see clarity on ECB and Fed policy and an abatement of the current military conflicts.

We favor high dividend yielding equities versus high-yielding bonds

The current year was supposed to mark “ according to consensus research “ the first one since the Great Recession in 2008 when the US economy would reach 'escape velocity', that is a self-sustained growth path whereby the economy would not need stimulus anymore.
Actually the analysis of asset performance across the globe and latest economic data “ waning investors' confidence in Germany and weak retail sales in the US “may instill doubts about the strength of global growth, although the 'escape
velocity' is there.

The top performing sectors in the MSCI World “ the world equity benchmark “ are (year-to-date) information technology and pharma. Both sectors rely heavily on research breakthroughs and thus can easily expand for extended periods of time above GDP growth rates. They tend to outperform the rest of the market when it is difficult to find widespread growth in those pockets more directly related to the business cycle.

Economic data, although good on the surface, do not speak in favor of high-flying expansion rates yet. In all major developed economies, the US, Europe, the UK and Japan, wage growth is sluggish, so much so that inflationary pressures “ another indicator of rampant growth “ are non-existent.

Long term bond yields “ directly linked to long-term economic growth “ are quite subdued as well. US 10-year yields are stubbornly below 3% and in Europe Germany 10-year yields are dangerously close to 1%, bringing to mind recollections of what happened in Japan in the so-called 'lost decade'.

In a lower economic growth environment we think it is best to circumvent the world of low returns by investing in high dividend-yielding stocks, which tend to outperform by compensating investors with larger dividends, and by focusing on stock and equity fund selection.

On the other hand we advise clients against a plain overweight strategy in high-yielding bonds, although until recently a favorite asset class supported by the hunt for yield. The forthcoming end of Quantitative Easing (QE) by the Fed in October, combined with overly tight spreads of junk bonds and the recent outflows recorded in this market segment, do not speak of continued outperformance versus equities.

Commodity prices remain elevated primarily on the Russia Ukraine conflict.

Palladium seems to have broken out from an important level of USD 890 per ounce and if it manages to sustain these levels we could see new highs.


About GCC equity markets
GCC equity markets

 


MENAFN Press




  MENA News Headlines
 Nov 27 2014 - Lebanon mourns 'songbird' SabahArab News
(MENAFN - Arab News) BEIRUT: Iconic Lebanese singer and actress Sabah died Wednesday at the age of 87 after a seven-decade career and a colorful love life that kept her in the headlines until the ...

 Nov 27 2014 - Egypt drops ban on 'adults only' filmArab News
(MENAFN - Arab News) CAIRO: An Egyptian court has revoked a government ban on a film by Lebanese star Haifa Wehbe that had been deemed sexually provocative judicial sources said on Wednesday.In April ...

 Nov 27 2014 - Saudi- Prince vanishes from social mediaArab News
(MENAFN - Arab News) NEW YORK: Prince whose distaste for the music industry's conventions is well known has abruptly disappeared from social media after tentative efforts to promote his two new ...

 Nov 27 2014 - Saudi- Cumberbatch quits smokingArab News
(MENAFN - Arab News) LONDON: 'Sherlock' star Benedict Cumberbatch has revealed he left smoking one month back.The 38-year-old actor said staying away from cigarette is helping him stay healthy ...

 Nov 27 2014 - Saudi- Dilip Kumar perfectly fine: Big BArab News
(MENAFN - Arab News) MUMBAI: Thespian Dilip Kumar is 'perfectly fine' says actor Amitabh Bachchan quashing rumors of the former's health scare.Social networking platforms were abuzz with rumors ...

 Nov 27 2014 - Saudi- Turki Khan: Changing society one step at a timeArab News
(MENAFN - Arab News) Dreams ambitions and determination have no limits dedication to those three traits can take that dreamer ambition-seeker and determined young man or woman to places he or she ...

 Nov 27 2014 - Saudi- Exploring fine art through pencilArab News
(MENAFN - Arab News) Eman Al-Qahtani is a successful talented and ambitious young Saudi artist. She combines thoughts and colors in her paintings. She has her own art method; a painting is to deliver ...

 Nov 27 2014 - Saudi- Qatar lifts 22nd Arabian Gulf CupArab News
(MENAFN - Arab News) Qatar rallied to get the better of Saudi Arabia 2-1 to win the 22nd Arabia Gulf Cup football tournament at the King Fahd International stadium in Riyadh Wednesday night.Playing ...

 Nov 27 2014 - Saudi- Al Kabeer climbs to No. 2 after honors sweep in Globe CupArab News
(MENAFN - Arab News) One mighty performance that saw Al Kabeer Frozen Foods sweep honors had the defending champion moving up the leaderboard after the eighth week in the Thursday League 12th ...

 Nov 27 2014 - Al-Taib wins Fastest Car Race 2014 in RiyadhArab News
(MENAFN - Arab News) Ahmed Al-Taib a Saudi topped the Fastest Car Race 2014 which was organized at Dirab Park racetrack in Riyadh. Al-Taib won the race in a Porsche 911 Turbo which is characterized ...

more...


 






Google

Click to Apply

 
 

Middle East North Africa - Financial Network

MENAFN News Market Data Countries Tools Section  
 

Middle East North Africa - Financial Network
Arabic MENAFN

Main News
News By Industry
News By Country

Islamic Finance News
Private Equity News

How-To Guides
Technology Section

Travel Section

Search News

Market Indices
Quotes & Charts

Global Indices
Arab Indices

Commodoties

Oil & Energy

Currencies Cross Rates
Currencies Updates
Currency Converter

USA Stocks
Arab Stocks
 

Algeria 
Bahrain 
Egypt 
Iraq
Jordan 
Kuwait 
Lebanon
Morocco 
Oman 
Palestine
Qatar 
Saudi Arabia 
Syria
Tunisia 
UAE 
Yemen

Weather
Economic Calendar
Financial Glossary


Financial Calculators

RSS Feeds [XML]

Corporate Monitor

Events

Real Estate
Submit Your Property

Arab Research
Buy a Research

Press Releases
Submit your PR

Join Newsletters


 
© 2014 menafn.com All Rights Reserved.  Terms of Service | Privacy Policy | Contact Us | Advertise | About MENAFN | Career Opportunities | Feedback | Help