Kuwait Financial Centre “Markaz” R E S E A R C H Markets Down in May Weak global growth cues, a drag on markets May 2011 Returns (%) S&P 500 MSCI World MSCI EM S&P GCC -1.35 -2.06 -3.05 -1.72 World markets fell in the first half of the month before leveling off towards the end as economic data indicated that Q2 would be weaker in terms of global growth. The MSCI World index shed 2% in May, bringing the YTD return down to 6.6%. The US economy grew by 1.8% in 1Q (missing estimates) while the Euro area grew at just 1% despite strong growth out of Germany. Greece debt issues returned to the forefront as the country struggles to fulfill the requirements of the 5 th tranche of its bailout agreement through further austerity measures. Commodities also seem to be cooling off; the CRB Commodities Index shed 1% for the month after coming in flat in April. Crude oil reversed its April gain with a loss of 7% for the month, but remains up 26% YTD. GCC markets reversed April gains, as a wave of selling swept markets in addition to weak global cues. The S&P GCC Index was down 1.72% with Saudi Arabia being the only market to show a gain, closing up just 0.40%, while all other markets lost between 2%-5%. Volume traded was up 2% in May while value traded increased 5% to USD 39 bn. Liquidity was driven by increasing volume in Saudi and Kuwait, where volume was up 24% and 32%, respectively, while the same across all other markets were down for the month. Overall value traded in the GCC for the year is at USD 167 bn, i.e. 56% of the 2010 total. MVX GCC (a measure of volatility) was down 17% for the month due to a 40% decline in MVX Saudi. Oman was the only GCC country to see an increase in risk; MVX Oman was up 18% for the month. Kuwait valuations remain in the 15x-20x range and are trending lower as earnings have grown while Oman is trading at about 10x and Qatar‟s valuations have increased slightly closing in on the 15x range. June 2011 Research Highlights: Review of global and regional stock markets for the month of May 2011 Markaz Research is available on Bloomberg Type “MRKZ” <Go> M.R. Raghu CFA, FRM Head of Research +965 2224 8280 [email protected]Layla Al-Ammar Assistant Manager +965 2224 8000 ext. 1205 [email protected]Kuwait Financial Centre S.A.K. “Markaz” P.O. Box 23444, Safat 13095, Kuwait Tel: +965 2224 8000 Fax: +965 2242 5828 markaz.com
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Kuwait Financial Centre “Markaz” R E S E A R C H
Markets Down in May Weak global growth cues, a drag on markets
May 2011 Returns (%)
S&P 500 MSCI World MSCI EM S&P GCC
-1.35 -2.06 -3.05 -1.72
World markets fell in the first half of the month before leveling off towards the end as economic data indicated that Q2 would be weaker in terms of
global growth. The MSCI World index shed 2% in May, bringing the YTD
return down to 6.6%.
The US economy grew by 1.8% in 1Q (missing estimates) while the Euro area grew at just 1% despite strong growth out of Germany. Greece debt
issues returned to the forefront as the country struggles to fulfill the requirements of the 5th tranche of its bailout agreement through further
austerity measures.
Commodities also seem to be cooling off; the CRB Commodities Index shed
1% for the month after coming in flat in April. Crude oil reversed its April gain with a loss of 7% for the month, but remains up 26% YTD.
GCC markets reversed April gains, as a wave of selling swept markets in addition to weak global cues. The S&P GCC Index was down 1.72% with
Saudi Arabia being the only market to show a gain, closing up just 0.40%, while all other markets lost between 2%-5%.
Volume traded was up 2% in May while value traded increased 5% to USD
39 bn. Liquidity was driven by increasing volume in Saudi and Kuwait,
where volume was up 24% and 32%, respectively, while the same across all other markets were down for the month. Overall value traded in the GCC
for the year is at USD 167 bn, i.e. 56% of the 2010 total.
MVX GCC (a measure of volatility) was down 17% for the month due to a
40% decline in MVX Saudi. Oman was the only GCC country to see an increase in risk; MVX Oman was up 18% for the month.
Kuwait valuations remain in the 15x-20x range and are trending lower as
earnings have grown while Oman is trading at about 10x and Qatar‟s
valuations have increased slightly closing in on the 15x range.
June 2011
Research Highlights: Review of global and regional
Figure: 11 - CRB Commodity Index Figure 12: JPM EMBI Global Spread
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GCC Markets Review – May 2011 GCC markets were down in May, reversing the gains made in April, as a
wave of selling swept markets coupled with negative corporate news and weak global cues. The S&P GCC Index shed 1.72% and is down nearly
2.3% for the year. Saudi Arabia was the only market to eke out a gain,
closing up just 0.40%, while all other markets lost between 2%-5%.
Losses were led by Oman and Kuwait; the former was down almost 5.2% while the latter (Weighted Index) shed 5%.
Table: 1 - Market Indicators
M. Cap (USD Bn)
Last May 2011 YTD 2010 P/E
Indicators Close % % TTM
Saudi (TASI) 358 6,736 0.38 1.74 8.15 15
Kuwait SE WT.INDEX 118 444 -5.07 -8.36 25.00 15
Qatar(Doha SM) 94 8,375 -2.03 -3.53 24.50 11
Abu Dhabi (ADI)^ 77 2,639 -2.09 -2.97 -1.51 9
Dubai (DFMGI) 52 1,560 -4.54 -4.33 -10.08 8
Bahrain (BAX) 16 1,347 -4.15 -5.98 -2.11 10
Oman(Muscat SM) 13 6,008 -5.17 -11.06 5.92 11
S&P GCC Composite Index
243 98 -1.72 -2.29 12.70 14
Source: Excerpt from Markaz „Daily Morning Brief‟ June 1st , 2011
GCC economies are expected to grow by over 5% in 2011, according to the
World Bank. NBK expects GCC economies to beat the World Bank estimate by about 2% as oil prices remain elevated in addition to large-scale
spending by governments.
According to Standard Chartered, the GCC could see up to 20 bond issues
over the next six months due to increasing global demand for emerging market debt. Following a slow Q1, primary issuances from the Gulf are on
the rise. The UAE airline, Emirates, recently launched a 5-yr, USD 1 bn bond. Nakheel and NBAD are also discussing possible issuances.
Saudi Arabia
According to the Saudi Arabian Monetary Authority (SAMA), the Kingdom is expected to see “moderate inflationary pressures” in the second quarter of
2011. Inflation was at 4.8% YoY in April, fueled by high food prices. Net Foreign Assets were up 13% YOY in April while Money Supply (M3) was up
17% in the same period in a sign that liquidity is returning to the Kingdom.
Also during the month, SAMA reiterated its commitment to Dollar peg, stressing that it was here “to stay”, despite rumors that all GCC countries
(Ex. Kuwait) might de-peg from the greenback within 3 years.
The much-anticipated Saudi mortgage law is expected to be approved this
year; the law could translate to up to USD 20 bn of accretive value to the overall banking sector, according to Credit Suisse. The firm cautioned
against possible challenges facing the law which include “enforceability, need to intensify development of "white lands", asset/liability mismatch and
the need for other sources of funding (albeit in the long term).”
On the Utilities front, the Kingdom plans to spend nearly USD 90 bn over
the next decade on increasing Power generation and capacity as demand
GCC markets were down in
May
GCC economies are expected to grow by over 5% in 2011
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for electricity in the Kingdom has been growing at an annual clip of 8%2. Efforts in this regard will be led by Saudi Electricity Company‟s USD 80 bn
investment program. SEC gained 2.53% for the month.
United Arab Emirates
Dubai, which has a significant debt overhang in the coming years (to the
tune of $30bn in two years), is planning to cut government spending by
20%-25% until 2013 in an effort to save almost USD 1 bn and narrow its deficit3. The 2011 budget for the emirate is expected to show a deficit of
USD 1 bn.
A new IMF report urged the UAE to limit future borrowings, especially with
its GRE‟s, in addition to taking further steps to safeguard its banking system against internal and external shocks due to asset deterioration. During the
month, Dubai government announced that it would take control of Dubai Bank, an Islamic lender in the Emirate. The bank is linked to a State-owned
investment vehicle with 70% ownership from the government and 30% by Emaar Properties. The government is expected to inject the bank with an
unspecified amount of capital, which will dilute current shareholder
percentages, allowing for a total takeover.
Fitch and S&P both assigned a „AA‟ credit rating with a Stable outlook to Abu Dhabi in spite of regional political unrest. The oil-rich emirate accounts
for roughly 60% of UAE GDP.
Kuwait
Kuwait‟s inflation was up 5.3% in April; inflation is expected to rise further
in 2011 due to higher food prices and increased subsidies.
As the Capital Market Authority laws have come into effect; the KSE
recently warned 91 companies (over 40% of listed firms) of possible suspension due to failure to release Q1 financial results.
During the month, the market was also hit by speculation that the Zain deal
to sell its stake in Zain Saudi Arabia to Batelco and Kingdom Holding for
USD 950 mn was hitting roadblocks. Batelco and Kingdom Holding stated that negotiations were ongoing and rumors of difficulties were
“unsubstantiated and speculative in nature.” Kingdom Holding and Zain Saudi gained 4% and 5%, respectively while Zain and Batelco
shed 13% and 10%, respectively.
Qatar
Qatar is moving ahead with efforts at creating a formalized debt market;
the State will first introduce sovereign bonds and Sukuks as part of its plans to soon introduce bond trading, to be followed by Corporate bonds. There
are not expected to be limitations on foreign investors; however, issuers
might be able to put restrictions on investors wishing to trade in bonds by setting out conditions at the time of listing. The bourse, however, did not
specify the lots in which small investors would be allowed to participate in through the secondary market.
2 Ministry of Electricity and Water 3 UAE Supreme Fiscal Committee
Saudi Arabia plans to spend nearly USD 90 bn over the
next decade on increasing Power generation and capacity
Kuwait‟s inflation was up 5.3% in April
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In the banking sector; credit quality remains high, with NPLs/loans at just 2.0% in 20104 versus upwards of 4%-7% across the GCC. Loans grew by
8.5% YOY to USD 86 bn in March 2011. The Qatar banking index was flat
for the month though QNB gained 1%.
Bahrain
The political situation in Bahrain continues to negatively affect the country‟s
financial sector. Moody‟s downgraded three of the country‟s banks during the month with a Negative outlook on the same. BBK was lowered to Baa2
(from A3), BMI Bank to Ba1 (from Baa3) and National Bank of Bahrain to Baa1 (from A3). The report cited the negative impact that political turmoil is
having on the banks‟ operating environment in addition to calling into
question the government‟s ability to support the banking system. The Commercial Bank Index was down 4% for the month.
Earlier in the month, Bahrain‟s sovereign credit rating was cut by Moody‟s to
Baa1 (from A3) with a Negative outlook due to continued political unrest. According to the rating agency, these events are likely to have damaged
economic growth significantly, especially in service sectors such as tourism,
trade and financial services5.
Liquidity, Risk & Valuation
Volume traded was up 2% in May while value traded was up 5% to USD 39
bn. Liquidity was driven by increasing volume in Saudi and Kuwait, where volume traded was up 24% and 32%, respectively, while volume across all
other markets were down MoM (Data Table 1). Overall value traded in the GCC for the year is at USD 167 bn, i.e. 56% of the 2010 total.
Risk in the GCC (as measured by the Markaz Volatility Index – MVX) was
down 17% for the month, the highest decline in the region was a nearly
40% decline in MVX Saudi (Figure 21). Oman was the only GCC country to see an increase in risk; MVX Oman was up 18% for the month.
Kuwait valuations remain in the 15x-20x range and are trending lower
(Figure 14) as earnings have grown while Oman is trading at about 10x and
Qatar‟s valuations have increased slightly closing in on the 15x range. Chart Pack – GCC
Figure: 13 – S&P GCC – PE Band Figure: 14 - MSCI Kuwait – PE Band
Source: Thomson DataStream
4 QNB Capital Review 5 GCC Fixed Income Update – 29 May 2011, Markaz
Bahrain‟s sovereign credit
rating was cut by Moody‟s to Baa1 (from A3) with a
Negative outlook due to
continued political unrest
Volume traded was up 2% in May while value traded was up 5% to USD 39 bn
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Figure: 15 - MSCI UAE– PE Band Figure: 16 - MSCI Qatar – PE Band
Figure: 19 – Average Daily Value Traded (USD mn) – May 2011
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Figure: 20 - Risk & Return – GCC Vs Developed & EM
Figure: 21 – Comparative MVX Levels – May 2011
Source: MVX is a proprietary volatility index developed by Markaz Research Note: Base data for MVX GCC has been changed from MSCI GCC to S&P GCC Index.
United Arab Emirates (AED) ETISALAT 22 10.3 0 -5 14 11 1,817 -9
NBAD 9 11.0 -3 12 5 9 927 -10
First Gulf Bank 7 17.5 -4 1 17 8 875 -5
Emirates NBD 6 3.8 -5 37 0 8 1,413 27
Emaar Properties 5 3.2 -4 -11 -8 9 421 -45
Kuwait (KWD)
ZAIN 16 1.0 -13 -32 71 13 70 36
NBK 17 1.2 -5 -8 55 15 81 6
KFH 10 1.0 -4 -3 16 28 23 -27
Gulf Bank 5 0.6 -2 -2 90 49 10 NM
Comm. Bk. Kuwait 4 0.9 -3 -2 -1 27 1 NM
Qatar (QAR)
Industries Qatar 21 139.0 -6 1 21 12 2,095 72
QNB 24 138.0 1 4 61 12 1,707 35
Ezdan Real Est. Co. 17 23.0 -1 -25 46 NM 37 -49
Q-TEL 7 155.0 -2 4 23 11 762 -37
Comr‟cial Bk of Qatar 5 72.2 -1 -22 49 10 446 9
Source: Excerpt from Markaz Daily Morning Brief, June 1st 2011
R E S E A R C H June 2011
R E S E A R C H June 2011
R E S E A R C H June 2011
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