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MENAFN - Arab Times - 08/10/2012

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(MENAFN - Arab Times) The economic performance of the GCC countries is robust with an expected growth of 6 percent for the region, a specialized economic report showed Sunday.

The report, 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," reads the report.

It 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 percent 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 percent 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 report disclosed that the overall GCC equity markets, did not track global performance during the period as S&P GCC Composite Index lost -1.29 percent 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 percent while WTI slipped -4.72 percent on the back of weaker Global demand forecasts.

"Weakness in oil prices coupled with lack of optimism in Q3 earnings, likely resulted in Saudi Arabia's Tadawul to close -4.19 percent during the month of September. Major sectors including Banks and Petrochemicals lost -5.14 percent and -3.85 percent respectively." Kuwait's Weighted Index edged ahead in September after continued losses during the year, rising 4.45 percent, 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."

In the UAE, both Abu Dhabi's ADI and Dubai's DFM gained 1.71 percent and 2.00 percent 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 percent and 4.92 percent respectively. In Qatar, the QE index was up marginally by 0.31 percent for the month following. The Industrial sector was the top performer, adding 0.95 percent, while the Services sector gained 0.32 percent. Qatar lags behind the overall region on YTD with total return of -3.06 percent compared to S&P GCC of 3.34 percent. Oman's MSM index also lagged the GCC markets growing at merely 0.99 percent. Performance was impacted by Financial Sector which slipped -1.47 percent during the month. However, Industrial and Services Sectors rose by 3.67 percent and 3.93 percent supporting the overall index.

Bahrain's BSE Index remains relatively flat adding only 0.09 percent 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. "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," reads the report. Regional markets traded in a narrow range, managing to close with moderate gains. "The HSBC Nasdaq-Dubai GCC Sukuk/Bond TR Index (GCCB) rose m-o-m, to close at 153.73 from 152.36 and spreads widened by 4bps, yielding 3.61 percent. The HSBC Nasdaq-Dubai Sukuk TR Index (SKBI) increased m-o-m from 142.96 to 143.69, while the HSBC Nasdaq-Dubai GCC Conventional Bond TR Index (GCBI) traded in a range of 155-157. HSBC Nasdaq-Dubai GCC Conventional Bond TR Index underperformed the EM. In the CDS Sovereign space, tightening of spreads was witnessed across the space. Bahrain was the best performer with spreads tightening by 76bps (-23.3 percent) followed by Saudi 13bps (-13.7 percent). Abu Dhabi (-5.5 percent), Dubai (-5.1 percent) and Qatar (-4.6 percent) were other winners."

The report said that the Primary market was surprisingly muted given a strong pipeline. "However, we expect the primary market to be very strong during coming month. Banks are expected to be prominent issuers primarily to meet refinancing and growth requirements. Qatar Islamic Bank ("QIB") has already announced investors meeting and First Gulf Bank is going to hit the market soon." The GCC market had a sharp run up during YTD'12 supported by strong fundamentals and technicals.

"However, now the market is looking bit stretched with rich valuations. Therefore, in ST, we expect the market to consolidate with technicals gaining upper hand. The primary market is also expected to play a spoil sport with slew of issuances, resulting in accounts being net sellers in secondary markets. Overall, there might be overhang on credit spreads in the near term, "However, in the MT-LT, we continue to believe that the regional market will perform well given the supportive macro-fundamentals and positive news flow from international space primarily returns to growth trajectory. GCC credit still continues to trade cheaply when compared to its rating class. It also benefit from a very supportive investor base, with Middle East investors having acquired around 50 percent of the total issuance out of the GCC so far this year.

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. Due to technical and fundamental reasons, we continue to like Dubai names in the High Volatility. However, in ST, we might see volatility, given a very sharp run up."


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