The latest report from BofA Merrill Lynch Global Research was released today, titled, “BofA ML Emerging Markets – MENA Quarterly: Positioned to cope with global slowdown”.
Bellow are the highlights:
Macro overview: Positioned to cope with global slowdown
BofA Merrill Lynch believes that, compared to 2008, the region is broadly in a better shape to weather the global slowdown. Progress on corporate deleveraging, more robust banking systems, higher but broadly still reasonable breakevens, a heavy infrastructure pipeline and sovereign wealth are likely to cushion the global downturn. The bank sees MENA / GCC GDP growth at 5.8% and 6.9% in 2011 (vs. 4.7% and 5.2% previously). The bank cut s2012 MENA / GCC growth to 4.0% and 3.9% (vs. 4.7% and 4.9% previously) mainly due to our expectation of flattish oil production in 2012 but still strong non-oil GDP growth, and higher base effect.
Commodity: Oil demand scenarios for 2012
Clearly global oil demand has been on a decelerating path in recent quarters and this trend looks poised to continue. But stocks are balanced after several months of draws. Global oil demand shrinks only if world GD is below 2%. A sharp price drop is thus unlikely amidst abundant liquidity. In short, we stick to our view that Brent crude oil will average $114/bbl in 2012, as BofA Merrill Lynch believes policymakers will help manage avoid the damaging “step level” change in oil consumption called recession.
Equity: prefer Saudi and Qatar
Within MENA, BofA Merrill Lynch prefers Qatar and Saudi, see few opportunities within the UAE and remain cautious on Egypt. Top picks within the region are Bank Muscat, CBQ, FGB, Mobily, Samba, Saudi Cement and Sorouh.
Focus: Dubai neither doomed to fail, nor a safe haven
The consensus has moved quite a bit over the past two years on Dubai, swinging from doom and gloom on Dubai World restructuring to an Arab safe haven in H111. It is true that a significant headway has been made on debt restructuring and Arab spring has diverted tourists, businesses and financial capital into Dubai. Still, BofA Merrill Lynch sees scope for Dubai economy to slowdown, debt rollovers to become more challenging, and asset quality to further deteriorate if the European debt crisis evolves into a full blown financial crisis.
Credit: UAE corporates: holding up well
BofA Merrill Lynch believes the UAE looks better placed than other markets in CEEMEA at the current time. As such, we are mostly constructive on corporates covered in the UAE, with a preference for Abu Dhabi quasi-sovereigns. We would highlight our Overweight-30% recommendations on Mubadala bonds and TAQA 2013$-2036 bonds; and on National Bank of Abu Dhabi and First Gulf Bank 2016s.[mpoverlay][/mpoverlay]