(MENAFN- The Peninsula)
By Satish Kanady
DOHA: The GCC equity markets recovered some ground in the second quarter (Q2, 16) as oil prices rebounded. Following a weak start to the year, most markets registered some gains in the second quarter of the year before shedding some of it in the aftermath of the Brexit referendum.
In their first post-vote trading session, all GCC equity markets closed in the red but have since weathered the big event better than their international counterparts. The MSCI GCC total return index closed the quarter up 2 percent, outperforming most world markets. Total GCC market capitalisation stood at $877bn at the end of the quarter, having gained $12bn during Q2, 16, NBK";s ‘economic update"; report noted.
Though the MSCI GCC total return index closed the quarter 2 percent up, performance varied notably across markets. The Qatari market was the worst performer regionally, closing the quarter down 5 percent. Oman outperformed with its price index up 6 percent followed by Saudi Arabia at 4 percent. The Saudi market had suffered more losses than most markets when oil prices tumbled earlier in the year and a stronger rebound was expected; nonetheless, Saudi continues to underperform the region year to date (-6 percent vs. +2 percent).
Sentiment in Saudi Arabia has improved since authorities unveiled their much anticipated 'Vision 2030” plan, which aims to diversify the economy away from oil and improve the kingdom";s fiscal standing. The announcement of new Qualified Foreign Investors (QFIs) regulations and a potential partial listing of Aramco also gave a boost to the Saudi market.
Banking, the markets biggest sector, is being pressured by declining liquidity. Some banks are also dealing with capitalisation issues. Meanwhile, lack of clarity regarding government spending plans, including potential cuts, is not helping sentiment.
Dubai also underperformed and was off 1 percent on the quarter but remains one of the better markets year-to-date. Dubai Financial Market (DFM) took the biggest hit on its first trading session post-Brexit. Its relatively large foreign investor base makes it more susceptible to international markets volatility. Market liquidity continues to be low. The daily turnover in Q2, 16 averaged $1.6bn, down 10 percent from Q1, 16 average. With banks and sovereigns now turning to fixed-income markets to issue Basel III compliant perpetual and other bonds, and sovereigns looking to tap capital markets to help finance deficits, some liquidity is bound to be directed away from equities.
Also, with GCC rates now starting to rise in tandem with US rates, fixed-income assets are becoming more attractive. Liquidity also tends to be lower in the summer and during Ramadan and Eid period. Volatility in equity markets is likely to remain high. Brexit and the political changes it induces have introduced substantial uncertainty into markets and the dust is yet to settle. The Fed";s upcoming meetings and the likelihood and timing of further rate hikes will keep markets excited. GCC markets will continue to follow up on governments"; fiscal and reform plans for the coming years in order to gauge the implications for non-oil growth and business in GCC economies. In the near term, focus will be on the upcoming Q2,16 corporate earnings. Meanwhile, oil prices will remain a primary factor for regional markets.
The Peninsula