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Market Update
February 23rd, 2015
GCC Equity Markets
Regional markets have continued to witness strong performance in February with oil prices recovering to
USD 61.5 bpd, up 16.1% MTD. Dubai, Qatar and Saudi have been the notable performers this month up
7.9%, 6.7% and 6.6% MTD. Kuwait and Oman are both up 1.8% MTD while Egypt is the only market in
the red, down -0.6% MTD. Overall, Saudi remains the strongest market for the year, up 13.6% YTD
followed by Egypt which is up 8.3% YTD. Volumes in regional markets remained muted, with the
exception of Saudi, where average daily value trades increased 7.1% to USD 2.4 bn.
In terms of regional news flow, PMI numbers continued to be resilient, coming in at 59.3 for UAE in
January (vs. 58.4 for December) and 57.8 for Saudi in January as compared to 57.9 in December. The
reading suggests that output and orders remain robust and unaffected by the low oil price environment
at the beginning of the year. Furthermore, the UAE Economy Minister expects the economy to grow at 44.5% in 2015.
In Oman, the Central Bank reduced the rate of interest payable on capital deposits by 50bps and the
Government has also issued OMR 200 m in new bonds. S&P has revised Oman’s sovereign credit outlook
to ‘Stable’ from ‘Negative’. The decline in oil prices has a significant impact on the outlook for Oman's
fiscal and external positions, given its high dependence on oil. However, the stable outlook on Oman
reflects S&P’s view that the deterioration in nominal GDP, fiscal, external positions will not substantially
exceed current expectations.
In other notable news, Saudi cement numbers remained strong in January, up 12% YoY. Kuwait banking
sector stats have also been released for December 2014 which showed loan growth of 6.2% YoY, up
from 5.9% in November 2014.
Abu Dhabi
Dubai
Qatar
Kuwait
Oman
S Arabia
Bahrain
Egypt
% chg MTD
5.4
7.9
6.7
1.8
1.8
6.6
1.2
-0.6
% chg YTD
3.7
5.0
3.3
2.9
5.2
13.6
1.0
8.3
Avg Turnover (USD '000)
61,667
185,240
134,891
96,315
15,195
2,441,474
680
67,673
PE '15
11.6
10.8
12.1
11.0
9.3
13.4
8.5
11.6
Dividend Yield
5.0
3.8
4.7
4.6
5.1
3.3
5.2
2.9
Source: Bloomberg & Zawya
*As of 15 February 2015
Economic & Corporate News
UAE:
•
PMI reading for January 2015 indicates strengthened pace of non-oil private sector
activity expansion: The PMI headline figure, which measures business conditions for the non-
oil private sector economy, came in at 59.3 up from 58.4 in December 2014. The backdrop to
this robust pace is that private sector non-oil companies in the UAE continue to expand their
order book both domestically and internationally. In our view, it is encouraging that output and
orders remain robust and unaffected by the low oil price environment at the beginning of the
year. Nonetheless, we cannot rule out that the UAE’s private sector will face a softening in
growth momentum later in the year as capital flows and demand falter somewhat because of
reduced business and consumer confidence in the region more broadly.
•
Economy Minister expects GDP to grow 4.0-4.5% in 2015: UAE’s Economy Minister
Sultan Al Mansoori said that economic growth is unlikely to be 5% in 2015. He further stated that
the UAE is very safe, in terms of the economy, as all sectors including tourism and trade are
likely to continue growing this year.
•
Loan growth slows a bit in December: Loan growth in the UAE was 9.5% Y-o-Y in December
compared to 10.2% in November, according to data from the central bank. This is however
stronger than the 7.7% growth recorded in December 2013.
•
Dubai World's debt restructuring gets 100% creditor backing: State-owned Dubai World
has received backing from all its creditors for a USD14.6 billion restructuring plan, a court heard
on Sunday, paving the way for the deal to be formally approved by May. The restructuring
involves repaying early an existing USD2.92 billion maturity due in September 2015, with an
extension granted for a 2018 repayment to 2022.
•
Dubai Mall footfall hits 80 million in 2014; retailers record 14% Y-o-Y rise in sales in
2014: Visitors to Dubai Mall hit 80 million in 2014, according to a press release sent by Emaar
Malls. Tenant sales recorded a blended 14% during the year, while the contribution of Dubai Mall
to Dubai’s GDP is estimated to have reached 5%. The Mall’s planned one-million-sqft-expansion
is on track and is expected to add 150 more brands to the existing 1,200, according to Nasser
Rafi, Emaar Malls’ CEO.
QATAR:
•
Ooredoo seeks USD500 million Islamic loan: Qatari telecoms firm Ooredoo has approached
banks for a USD500 million Islamic loan. The company has asked lenders to provide pricing
guidance for a one-, three- or five-year loan. Ooredoo last tapped the loan market in May 2014
when it agreed two deals. It signed a USD498 million one-year multi tranche Murabaha facility
with Barwa Bank, Masraf Al Rayan and Qatar Islamic Bank as well as a USD1 billion, five-year
revolver with a group of 17 local and international banks.
OMAN:
•
Four- and five-star hotel guests in Oman rise 26%: The total number of guests staying at
4- and 5-star hotels in the Sultanate increased in 2014. The number went up to 785,612,
compared to 622,805 during the same period in 2013, a growth rate of 26.1%. The occupancy
rate stood at 59.9% at the end 2014, compared to a 58.3% during the same period in 2013.
•
Oman to issue OMR200 million in new Government Development Bonds: Government
Development Bonds (GDB) worth OMR200 million with a maturity period of 10 years and a
coupon rate of 4.5% per annum will be issued by the Central Bank of Oman (CBO). The CBO said
the issue would be open for subscription from 8 to 15 February, 2015 while the auction will be
held on Tuesday 17 February, 2015.
•
CBO cuts interest rate on capital deposits by 50bps: The Central Bank of Oman (CBO) has
reduced the rate of interest payable on capital deposits –deposits which licensed banks, leasing
and finance companies and money exchange companies are required to maintain with the
Central Bank – by 50 basis points. The interest rate payable on capital deposits has been reduced
to 1% per annum from 1.5%, CBO said in a circular issued to all licensed financial institutions.
•
S&P revises Oman sovereign credit outlook to ‘Stable’ from ‘Negative’: S&P revised
Oman sovereign credit outlook up to ‘Stable’ from ‘Negative’, but lowered sovereign credit rating
to A- from A. The decline in oil prices has a significant impact on the outlook for Oman's fiscal
and external positions, given its high dependence on oil. However, the stable outlook on Oman
reflects S&P’s view that the deterioration in nominal GDP, fiscal, external positions will not
substantially exceed current expectations
•
Hassad Food’s unit buys 33% stake in A'Saffa food for OMR38 million: Hassad Food
Co., a wholly-owned subsidiary of the Qatar Investment Authority, through its subsidiary Zulal
Investment Co., has bought a 33.25% stake in A'Saffa Foods from the Arab Authority for
Agricultural Inv-estment and Development (AAAID), worth OMR38.1 million. Hassad Food was
established in 2008 as a wholly-owned subsidiary of the Qatar Investment Authority, the
sovereign wealth fund of Qatar, with a mandate to run a profitable business with sustainable
growth, as well as to contribute to the food security programme for Qatar. The transaction was
carried out at OMR0.955 per share, nearly 22% above the stock’s Sunday closing price of
OMR0.784/share, according to data on the MSM website.
SAUDI ARABIA
•
Saudi cement sector: Local sales volume up 12% Y-o-Y in Jan 2015: Saudi cement
sector's local sales volume witnessed Y-o-Y growth of 12% in January 2015 to c5.4 million tonnes
(-3% on a M-o-M basis) that was largely due to base effect as January 2014 volume witnessed a
Y-o-Y drop of 10%, driven by the crackdown on illegal workers that has affected the construction
sector negatively. On a normalized basis, January 2015 volume signals some demand growth as
it came in 2% higher than January 2013 volume. Al Jouf showed the highest growth of 26% Y-oY (affected positively by SAR500 million three-year contract with Al-Mohileb and Sons Holding
Company to supply cement to its projects over 3Q2014-1Q2017), followed by Arabian cement
(+20%, Arabian operates in the busiest cities in Saudi Arabia, Makkah and Jeddah) and Southern
(+12%).
•
January 2015 PMI at 57.8 is slightly changed from December 2014: The PMI headline
figure, which measures business conditions for the non-oil private sector economy, came in at
57.8, compared with 57.9 in December 2014. The reading suggests a sustained pace of strong
expansion in non-oil private sector activity. Amongst the sub-indices, the new orders index
showed the strongest expansion since August 2014, with companies surveyed indicating that
market conditions were favourable to generate new business.
•
Dallah to start soft opening of its 65 outpatient clinics in Riyadh: Dallah announced the
inauguration and soft opening of its clinics in Al Nakheel district in Riyadh, with a capacity of 65
clinics, in line with the company’s expansion plans. The total cost of this project is SAR120
million, including construction cost, fixtures, equipment and furniture; and it will be financed by
the company's operations and long-term Islamic financing that will be announced later. Dallah
expects the impact of the new clinics on the financial results starting 4Q2015. The start date of
full operations of the project will be declared during the year 2015
•
Al-Khodari wins USD170 million contract from Maaden unit: Al-Khodari has announced
that the company had received a letter of award for a contract worth USD170 million from
Maaden. The expected duration of the project will be announced when the contract is signed;
yet, the company expects the financial impact on its results to start showing in 1Q2015.
KUWAIT
•
Kuwait committee recommends rejecting bids for USD4.8 billion airport expansion: A
committee in Kuwait's Public Works Ministry has recommended that all bids to build a new
terminal at the country's international airport be rejected, state news agency KUNA reported on
Sunday. In November, the tender committee for the project said a consortium of Kuwait's Kharafi
National and Turkey's Limak Holding had submitted the lowest bid for the contract, worth
USD4.78 billion. But KUNA quoted Kuwait's Minister of Electricity, Water and Public Works,
Abdulaziz al-Ibrahim, as saying on Sunday that a technical committee at the Ministry had
recommended all bids be rejected.
•
Kuwait Banking Sector Stats December 2014: Corporate loan growth continues to
disappoint: Loan growth ended December 2014 at 6.2% Y-o-Y (+0.5% M-o-M), up from 5.9%
Y-o-Y in November 2014. However, the growth rate in loans in December 2014 is below that of
December 2013, when loans increased 7.7% Y-o-Y. The deceleration in loan growth during 2014
is partly due to retail loans repayments linked to the family fund set by the Government; indeed,
retail loan growth decelerated to 10.5% in December 2014 compared to 12.2% in December
2013. However, corporate loan growth also slowed to 3.8% in December 2014 from 7.4% in
December 2013, driven by contraction in industry loans and slower loan growth in the industry,
real estate and construction sectors. On a monthly basis, system loans increased 0.5% only;
driven by an increase in the retail sector of 2% offset by a decrease of 0.8% in the corporate
sector.
EGYPT
•
Foreign reserves inch upwards to USD15.43 billion in January: Egypt’s Net International
Reserves (NIR) rose USD96 million in January to USD15.43 billion, data released by the Central
Bank of Egypt (CBE) show. The increase was surprising, given that Egypt paid USD680 million to
Paris Club in January, with the CBE not announcing any exceptional income for the month. We
note though that the increase was driven partially by USD212 million revaluation of the bank’s
gold reserves.
•
Tourism revenues up 27% Y-o-Y in 2014: Egypt's income from tourism, an important sector
of the economy, rose 27% Y-o-Y to USD7.5 billion in 2014 from USD5.9 billion the previous year,
Tourism Minister said. The country received 9.9 million tourists in 2014, up from 9.5 million in
2013, Tourism Minister Hisham Zaazou told a news conference. That was still about two-thirds of
the level before 2011. Zaazou told Reuters in September the tourism sector could fully recover by
end of 2015, as long as the country remains peaceful.
•
Banking sector statistics - December 2014: Loan growth picks up in December: System
loan growth accelerated to 14% Y-o-Y in December 2014, up from 12% Y-o-Y in November
2014. The acceleration was, to a large extent, driven by higher loans to the public business
sector; however, loan growth to the private corporate sector also picked up to 9.7% Y-o-Y in
December 2014, up from 7.7% in November 2014, a significant recovery from single-digit growth
rates in the earlier months of 2014. Retail loan growth was still solid, up 19.1% Y-o-Y. On a M-oM basis, system loans increased 1.2% in December compared to 0.4% in November. Loans to
the private corporate sector grew 0.5% M-o-M, which we believe is a notable performance as
Egypt banks usually see slow growth in December in the corporate sector due to a high level of
repayments ahead of the year-end closing.
Market Outlook
The overall investment sentiment in the region has started to improve following the recovery of oil prices
from their lows at the beginning of the year. In our recent trip to Saudi Arabia, we had the opportunity to
meet several corporates and there was general consensus that the Kingdom had the willingness and
resources to deal with this period of low oil prices.
Our overall outlook for the region continues to be positive and is underpinned by decent GDP growth,
favorable demographics and resilient government spending. We expect no material slowdown in spending
even though the focus may shift to prioritize social infrastructure spending i.e. on Education and
Healthcare.
Saudi remains our most preferred market followed by UAE and then Qatar. Valuations in the region at
~13x 2015e earnings are reasonable as compared to other global emerging markets. A key trigger we
look forward to in Saudi is the market opening up to foreign investors while growth in UAE and Qatar will
continue to be driven by essential infrastructure spending ahead of the World Expo in 2020 and FIFA
World Cup in 2022.
In terms of sectors, we are overweight Saudi consumer discretionary, with the sector likely to benefit
from the 2 month bonus salaries announced by the government. We also have selective over weights in
Banks, Petrochemicals and Real Estate sectors.