GCC equity markets benefit from increased global investment inflows

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·Frontier markets outperforms emerging markets over the past 2 years
·UAE is the world’s 2nd best performing market, with YTD of +61%
·Saudi Arabia is a top 10 market performer, with YTD of +21%

A recent Bank of America Merrill Lynch research report titled, ‘Frontier EMEA Equity Market Monitor: Frontier leads GEM on flow, earnings and valuation’, says that GCC equity markets will continue to benefit from increased global investment inflows, and specifically from active Global Emerging Market (GEM) funds.

“The UAE has emerged as the world’s 2nd best performing market with year-to-date (YTD) increase of 61%, and 2013 earnings growth estimates rising by around 100bp YTD to 9.6%. Meanwhile, Saudi Arabia was ranked as a top 10 market performer with YTD increase of 21%, and similarly Qatar performing equally well with YTD increase of 22%”, said Michael Harris, Managing Director and Head of EEMEA Equity Strategy.

Michael Harris continued, “Along with Saudi Arabia, the UAE equity market could inevitably be a structural winner in the long term. Saudi being the GCC’s biggest economy, there is a lot to benefit when the capital market opens up in the kingdom. Regionally, there will also be far reaching positive implications of the MSCI EM upgrade for the UAE and Qatar.”

The equity market is getting more support from key macro drivers but they affect the GCC countries differently. It is particularly favourable for Saudi equities as they stand to benefit from record highs of domestic oil production and stronger China data. Meanwhile, the UAE’s slowing momentum has priced in the drop in risk appetite but oil production remains positive. While in Qatar, the recent slowdown of money growth remains a potential short-term risk whereas oil production is stable.

Financial stocks are the biggest component of the equity market sector breakdown in the UAE (76%), Qatar (53%) and Saudi Arabia (33%). UAE and Saudi financials and Saudi materials dominate the list of stocks with both positive consensus 2013 EPS growth estimates and the strongest 12-week momentum.

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