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R E S E A R C H September 2009

Kuwait Financial Centre “Markaz”

2

A. GCC & Global Emerging markets (GEM) Performance – GCC an Underperformer 2008 has been a year of negative performance all across the world and across asset classes. However, in the YTD period of 2009, the global equity markets have recovered significantly and in the case of Emerging markets majority of the losses suffered in 2009 have been recouped. (Figure: 1). GCC markets have not been able to provide such a return and has underperformed the emerging markets significantly. The YTD underperformance in the GCC markets as compared to the emerging markets is at 28%. Figure: 1 – MSCI Total return indices performance GEM Vs GCC (2009 performance to July 2009)

Source: MSCI, Markaz Research Performance Attribution - Banking is a major drag for GCC The major reason for the significant underperformance of GCC as compared to the Emerging markets has been the returns from the financials segment. Financials form 23% of the emerging markets and has the largest weight. In the GCC region, Financials have a far higher weight at 44%. (Appendix- 3). In 2009 YTD period, the EM financials are up by 55% after posting a decline of 53% in 2008, thereby recouping almost all the losses suffered in 2008. On a weighted basis this provided to 13% of the overall performance of EM. In the GCC region, Financials increased only by 8% in the YTD period after falling by 55% in 2008. On a weighted basis, the financials index contributed to just around 3% of the total upmove of +23% in the YTD period. The sectors which have a lower weight such as telecom and materials have contributed more than the financials. (Appendix: 3) Among the financials, banks have a weight of 77% in the GCC region as compared to 70% in the emerging markets. Banks have witnessed a significant turnaround in the Emerging markets from -52% returns in 2008 to +54% returns in 2009 YTD period. In the GCC region, 2008 performance at -51% was similar to that of the Emerging market returns. However, the GCC banks gained by only 11% in 2009 YTD period. This significant underperformance of Banks resulted in the overall underperformance of GCC to Emerging markets. (Figure: 2)

23%

51%

-56%-53%

MSCI EM 2008 MSCI GCC2008

MSCI EM 2009 MSCI GCC2009

GCC markets underperformed the emerging markets significantly. The major reason for the significant underperformance of GCC as compared to the Emerging markets has been the returns from the financials segment.



3

Figure: 2 – GCC & EM Banks Performance ($100 in Dec – 07)

Source: MSCI, Markaz Research Factors influencing the GCC Underperformance to GEM and the future course. 1. Health of banks – Negative The earnings of GCC banks have lagged the emerging market bank earnings since 2007. In 2008, the growth turned negative for the first time since 2004 at -16%. This is in comparison to a 8% growth in GEM bank earnings on a YoY basis. Even though the GEM banks earnings was lower than 2007 growth rate of 36%, it managed to be positive. Going forward, taking the IBES consensus estimates into consideration, the emerging market banks are expected to record a 3% decline in growth rates for 2009. In the GCC, our estimates point out to a 1% decline in earnings growth. (Figure: 3) Till H109, the overall banking earnings are down by 15%. We are expecting a better 2H09 as compared to 1H09 in our estimates. Even though the growth rates are higher than EM banks, we believe that there are many unknown variables in GCC banking segment thereby carrying a higher downside risk to our estimate. Figure: 3 – GEM & GCC Bank Profits Growth ($100 in 2003)

Source: MSCI, IBES, Markaz Research

27-Feb-09, $38.07

31-Jul-09, $74.48

31-Jul-09,$54.60

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The earnings of GCC banks have lagged the emerging market bank earnings since 2007. Even though the growth rates are higher than EM banks, we believe that there are many unknown variables in GCC banking segment thereby carrying a higher downside risk to our estimate.



4

Also, in terms of valuations the GCC banks are currently quoting at a premium to their EM peers with a lesser trailing twelve month growth in earnings. Table: 1 – Valuations & Market related parameters – GCC vs EM Banks

Valuation Parameters & Market related

EM

Banks GCC

Banks RoE 13.23 11.85 Dividend Yield 2.33 3.91 YoY Growth Trailing 12 Month EPS -22.95 -28.60 PB(x) 1.82 1.85 PE (x) 13.76 15.57 Free Float Adjusted Market Cap (USD Mn) 453,244 53,928

Source: MSCI, IBES, Markaz Research Some of the variables that provide downside risks to our estimate are:

1. Increase in provisioning: GCC banks continue to provide for higher asset write off related losses. Taking the anecdotal evidences from the real estate segment, which continues to be in distress especially in the UAE and the recent Saad and Algosaibi groups exposures, we would estimate that the earnings expectations are fairly optimistic. S&P in its latest report on the exposure of banks towards the two groups puts a grim picture. Out of the 30 banks involved in the survey (the sample forms 2/3rd of total assets of all GCC banks) show that only two banks indicated no exposure. Net exposure was less than 5% of adjusted total equity (ATE) for 12 banks of the surveyed sample. Ten banks had net exposure representing more than 10% of their ATE, and only three banks showed net exposure of more than 20% of their ATE. In the report “Shelter in a storm” dated March 2009, we had expected a 33% increase in loan loss provisioning.

2. Lower credit growth: Money supply growth in the GCC markets have declined significantly from 2008 levels. In Saudi Arabia, the recent data for June 2009, shows a M3 growth of 16% which is lower than 21% growth recorded in the same period last year. In Kuwait too, it is off the highs seen in beginning 2008 at 27%. In the report “Shelter in a storm” we had expected a -1% decline in credit growth.

2. Real Estate Earnings – Negative

Real estate constitutes an important asset class for GCC investors apart from equities. In the past, the general resilience of real estate even when stock markets reeled under bear grip was providing the necessary liquidity comfort. However, since late 2008 both the asset classes sank in together thereby restricting the options for the investors. While real estate as an asset class did suffer even in GEM, the nexus between the stock market and Real estate is not that deep as we experience in GCC. Hence, we witnessed a strong stock market rebound in GEM in spite of a poor real estate environment. Real estate earnings in GCC were down by 26% in 2008 and we expect the trend to be negative for 2009 too. For 2009, our estimates point out to a

Some of the variables that provide downside risks to our estimate are: Increase in provisioning, Lower credit growth Real estate constitutes an important asset class for GCC investors apart from equities.

http://www.markaz.com/DesktopModules/CRD/Attachments/Shelter in a storm-Markaz Strategic Research.pdf

http://www.markaz.com/DesktopModules/CRD/Attachments/Shelter%20in%20a%20storm-Markaz%20Strategic%20Research.pdf





5

59% decline in real estate earnings. For 1H09, the real estate earnings have so far been worse with a YoY growth of -72%. Anecdotal evidences on real estate supply and demand mismatch from UAE, Bahrain and Qatar continue to be weak. 3. Broad Economy– Negative The projections for GDP growth for 2009 have been lowered significantly by IMF. In its current state, three of the six GCC countries are expected to witness a decline in GDP growth. The GCC region is expected to grow by 1.61% for 2009 as against 5.5% for 2008. This is due to the 18% growth in Qatar which provides to a 2.09% contribution at the GCC level. Saudi Arabia (0.9%), Kuwait (1.1%) and UAE (0.6%) are expected to be a drag for 2009. 4. Foreign Investment - Negative The GCC region has historically been an ‘off the benchmark’ bet for foreign investors. As organized statistics are not available for portfolio investments into the GCC region, the interests of this group of investors need to be ascertained by evaluating anecdotal evidences. We believe that foreign investors were very much active in the region till mid 2008. Post the crash and even currently we believe many of the boutique investment firms which were catering to the likes of hedge funds continue to close down their operations (primarily from Dubai). We believe that motivation levels for foreign investors to take on an active bet on the GCC region will remain low in 2009 since the region is not a part of the emerging market basket. However, they continue to be strongly motivated to pursue GEM bets which may partly explain the run up in GEM. 5. Oil prices – Neutral We believe that the only neutral factor in ascertaining the sentiment drivers in the GCC region is the oil price. The current rally in oil prices has been driven by lower consumption and higher spare capacity, which may not be a healthy recipe on a fundamental front. However, we believe that oil prices have moved to a new band of $60 - $70 per bbl. Even though this might look low when compared on a historical basis, we continue to feel that this price level would be sufficient for GCC economies to execute expansionary budgets. It has to be noted that most of the annual budgets in the GCC region take an oil price assumption of USD 40-45 per Bbl.

B. What to expect in 2009 The most important question is what to expect for 2009. Easier asked than answered! We believe that there area host of factors that confluence the markets. We have identified seven such factors that we feel will directly impact market performance during 2009. Based on its importance, we provide weights to each of these seven factors. (Figure 4). An explanatory description for all the seven factors can be found in Appendix 1.

The projections for GDP growth for 2009 have been lowered significantly by IMF. The GCC region has historically been an ‘off the benchmark’ bet for foreign investors.



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Figure 4: 7-Force Framework

Source: Markaz Research

1. Economic Parameters The overall economic scenario is neutral for all GCC nations, though the highest ranking comes to Kuwait based on the strength of its balance sheet. (Table: 2) This is an upgrade from our beginning 2009 forecast for Saudi Arabia and Oman which were rated negative. Qatar is a downgrade from positive. For a detailed comparison refer to our Jan 2009 report. i. Real GDP Growth Forecast According to the latest economic forecasts, Real GDP growth across the GCC is likely to drop from the mid-high single digits that were seen between 2000-2008 to roughly 2.45% in 2009. The IMF had initially revised downwards the 2009 GDP forecasts for GCC countries to low single digits, however, in the April 2009 update, forecasts were revised lower still. Economic forecasts now point to a year of negative GDP growth for Saudi Arabia, Kuwait, and the UAE, at -0.9%, -1.1%, and -0.6%, respectively. The important reason for this is a marked decline in expected oil production, although steadily increasing crude oil prices (IPE Brent is up 76% YTD) should help pull the economies out of their doldrums. Kuwait is expected to see the greatest contraction in GDP, declining 1.1% for the year as lower government spending acts as a drag on economic growth. Qatar, which unveiled a large expansionary fiscal budget for the coming year, is expected to clock a real GDP growth of nearly 18% in 2009.

ii. Inflation Inflation is expected to fall across the board as slower economic activity depresses prices. The largest decline in annual inflation is expected to be in the UAE from an estimated 11.5% in 2008 to just 2% in 2009, based on IMF data.

GCC CountryAssessment

Economic Factors

20%

Valuation Attraction

15%

Earnings GrowthPotential

15%

Investor Sentiment

10%

Geo Political Developments

10%

Market Liquidity10%

RegulatoryDevelopments

20%

The overall economic scenario is neutral for all GCC nations, though the highest ranking comes to Kuwait based on the strength of its balance sheet. Real GDP growth across the GCC is likely to drop from the mid-high single digits that were seen between 2000-2008 to roughly 2.45% in 2009.

http://www.markaz.com/DesktopModules/CRD/Attachments/This%20Too%20Shall%20Pass-Markaz%20Research.pdf



7

iii. Fiscal Balance Fiscal deficits for 2009 have been announced across the board, except in the case of the UAE which has released a balanced budget for the coming year. As a result of which, fiscal balances as a percentage of GDP have dropped into negative territory for the GCC. The highest being in Oman and Saudi Arabia, with -9% and -8% of GDP, respectively; however, these figures should be taken with a grain of salt as the combination of recovering crude oil prices and exceedingly low oil price assumptions used in the drafting of fiscal budgets may lead to the GCC posting actual fiscal surpluses in 2009.

iv. Current Account Balance Likewise, current account balances as a percentage of GDP are expected to decline significantly across the board. The largest decline is expected in the UAE, with current account balance expected to fall to -6% of GDP. v. Broad money growth Money supply growth slowed noticeably in 2008, and has declined further for most of the GCC in the first half of 2009. Qatar’s money supply contracted 3% in the first half of the year while Bahrain was flat. The only country sustaining money supply growth is Kuwait, where broad money growth in the first half of the year came in at 14%. Table: 2 – Economic Parameters Summary

Overall Scores - Economic

Saudi Arabia Kuwait UAE Qatar Oman Bahrain

Economic Growth 0.50 0.20 0.10 4.75 1.50 1.50

Inflation 3.75 3.50 4.50 2.75 3.50 4.25

Fiscal Balance 2.75 4.00 4.50 3.00 1.75 2.25 Current Account Balance 0.50 4.50 0.10 2.25 1.00 1.50

Broad Money Growth 3 4.5 1.5 0.5 3 1

Overall Score 2.10 3.34 2.14 2.65 2.15 2.10 Qualitative assesment Neutral Positive Neutral Neutral Neutral Neutral

Source: Markaz research 2. Valuation attraction

The collapse of markets in 2008 pushed PE valuations down to the single digits as earnings growth managed to hold up in some markets. In 2009, valuations are expected to climb to high single digits/low double digits due to a combination of some price appreciation and weakening earnings growth. The earnings growth in 2009 is expected to be low, this has resulted in stretched valuations in certain pockets of GCC. In our Jan 2009 report, we had rated all the markets in the GCC as positive mainly due to single digit valuations at that point in time. In this review, we have down graded all the GCC markets Ex-Bahrain in terms of valuations. The highest expansion has come in Kuwait, where expected 2009 PE is at 16x versus just 7x for 2008. Saudi Arabia has also shown significant expansion, from 9x in 2008 to 13x for 2009. Bahrain has remained flat as earnings in 2009 are expected to fall in line with the market.

Inflation is expected to fall across the board as slower economic activity depresses prices. In 2009, valuations are expected to climb to high single digits/low double digits due to a combination of some price appreciation and weakening earnings growth.



8

Table 3: Valuation Factors

P/E Saudi Arabia Kuwait UAE Qatar Oman Bahrain

2009 E 13 16 7 10 10 8

Score (0-5) 2.0 1.5 4.0 3.5 3.5 3.5

P/B Saudi Arabia Kuwait UAE Qatar Oman Bahrain

2008 2.1. 1.8 1.2 2.1 1.9 1.2

Score 3.0 3.0 4.0 3.0 3.0 4.0 Dividend Yield


2008 4.3 2.5 2.9 5.6 4.6 5.4

Score 3.5 1.5 2.0 4.0 3.5 4.0 Weighted Score 2.81 1.98 3.30 3.47 3.30 3.80 Qualitative assessment Neutral Negative Neutral Neutral Neutral Positive

Source: Markaz Research 3. Earnings growth potential

During the beginning of 2009, the clarity emerging from our bottoms up approach showed a aggregate earnings growth of 0% for GCC. We have revised this estimate by +1%. (Figure: 5) However, among the various countries, the earnings growth rates appear to be more robust than what was previously estimated. This is mainly due to the actual 2008 numbers (estimated during our previous report in Jan 2009) came in much lower than our estimates. We were looking at a fall of 8% in 2008 earnings. However, due to the significant fall in Q408, the overall GCC earnings growth for 2008 came in at -43%. Due to the bottoms up nature of our analysis, the significant revision has been mainly due to investment companies in Kuwait. Figure: 5 – Consolidated GCC Earnings Trend (USD Bn)

Source: Markaz Research With lower negative revisions for 2009 earnings, we see the overall growth rates for individual countries within GCC improving as compared to our earlier estimates. For example, in Kuwait, the aggregate earnings for 2008 was at -96% as compared to our estimate of -6%. The entire country posted a profit of just USD 227 Mn for 2008, far lower than average earnings of USD 8.9 Bn in the years between 2002 and 2007. Even though we do not expect the earnings to climb back to such a level in 2009, we still see a significant turnaround in earnings. Our call on the investment companies in Kuwait continue to have a significant bearing on our larger earnings call for both Kuwait and GCC.

11.0018.91

28.03

47.63 49.90

64.83

36.25 36.64

2002 2003 2004 2005 2006 2007 2008 2009E

During the beginning of 2009, the clarity emerging from our bottoms up approach showed a aggregate earnings growth of 0% for GCC. We have revised this estimate by +1%. With lower negative revisions for 2009 earnings, we see the overall growth rates for individual countries within GCC improving as compared to our earlier estimates.



9

Investment companies in Kuwait posted an aggregate loss of USD 2.0 Bn in 2008. This is a sector which formed on an average 35% of Kuwait earnings. On a sequential basis, we have seen significant improvement in the health of investment companies on an aggregate in Kuwait (1H09 vs 2H08). (Table 4).

Table: 4 – Consolidated GCC Earnings Trend (USD Bn) Earnings USD Mn 2002 2003 2004 2005 2006 2007 2008 2009E

Chemicals - Commodity 850 1,994 4,229 5,956 6,301 8,331 7,173 2,117

Telecom 2,385 4,033 4,834 5,805 7,316 7,854 7,896 6,864 Banks 4,398 5,326 7,959 13,108 16,698 18,139 15,315 15,143 Steel 15 320 719 930 1,043 1,446 2,031 1,432 Utilities 308 400 373 411 400 447 329 329 Investment Services 738 2,309 2,836 7,563 4,487 10,719 -9,037 1,729

Port Services 12 18 274 260 214 1,134 514 278

Conglomerates 74 110 263 838 584 813 348 240 Real Estate 381 1,021 1,588 4,025 5,422 5,903 4,387 1,790 Refining & Marketing 77 99 135 277 329 403 310 278

Construction Materials 723 935 1,273 1,826 1,696 2,208 1,506 1,578

Others 1,043 2,342 3,547 6,630 5,410 7,435 5,475 4,859 Total 11,004 18,910 28,031 47,628 49,899 64,833 36,245 36,637 Source: Reuters Knowledge, 3000 xtra, MSCI, Markaz Research

A turnaround in earnings growth is expected for Kuwait owing to severe losses posted in 2008, Saudi Arabia is expected to show growth of 12% in earnings. Declining corporate earnings are expected in the UAE and Qatar, to the tune of 33% and 12%, respectively (Table 5). We are positive on earnings growth rate for Saudi Arabia and Kuwait. Negative on UAE and Bahrain and Neutral on Qatar and Oman.

Table 5: Earnings Growth Potential Earnings Growth


Overall GCC

2003 64% 105% 46% 73% 0% 123% 72%

2004 48% 21% 72% 65% 150% 95% 48%

2005 44% 98% 133% 73% 24% 7% 70%

2006 16% -25% 9% 25% 17% 29% 5%

2007 8% 73% 39% 22% 55% 16% 30%

2008 -47% -96% -7% 31% -31% -64% -43%

2009F 12% NM -33% -12% 18% 22% 1%

Score (0-5) 3.50 4.50 1.00 2.00 2.50 2.50 Qualitative assessment Positive Positive Negative Negative Neutral Neutral

Source: Markaz Research Note: Absolute values are provided in Appendix - 3

Investment companies in Kuwait posted an aggregate loss of USD 2.0 Bn in 2008. This is a sector which formed on an average 35% of Kuwait earnings.



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4. Investor Sentiment We have used the Bayt’s Consumer Confidence Index to determine the sentiment of investors (Table 6). Consumer Confidence Index is survey based and reveals the economic well – being of a country. The index is tracked since 2007 and shows a declining trend till 2008. This has continued to February 2009 (the latest data available) where the largest declines have been in Kuwait and the UAE, down by 20%. Consumer confidence has remained steady in Saudi Arabia, declining just 1%.

Table 6: Consumer Confidence Bayt Consumer Confidence Index


Apr-07 652 635 634 672 NA NA

Jul-07 658 640 630 669 NA NA

Oct-07 579 609 592 615 NA NA

Jan-08 536 538 608 595 NA NA

May-08 517 522 549 551 580 544

Jul-08 504 541 497 549 568 515

Nov-08 504 520 475 557 547 526

Feb-09 498 413 379 496 528 454 Feb-09 Vs Nov-08 -1% -20% -20% -11% -3% -14%

Score (0-5) 4.50 1.75 1.75 2.75 4.00 2.75 Qualitative assessment Positive Negative Negative Neutral Positive Neutral

Source: Bayt.com, YouGov Siraj, Markaz Research

5. Geopolitical Developments

Table 7: Risk Ratings

Political Risk Saudi Arabia Kuwait UAE Qatar Oman Bahrain 2002 C C C C B C 2003 D C C B B C 2004 D C C B B C 2005 D C C B B C 2006 B BBB BBB BBB BBB BB 2007 B BBB A BBB BBB BB 2008 B BBB A BBB BBB BB

1H09 B BB BBB BBB BBB BB

Score 4.50 3.50 2.50 2.50 2.50 3.50

Economic Structure Risk


2002 B B B B B B 2003 B B B B C B 2004 B B B B B B 2005 B B B B B B 2006 BBB BBB A A A BBB 2007 BBB BBB BBB A A BBB 2008 BBB BBB BBB A A BB

1H09 BBB BBB BBB A A BB

Score 3.50 3.50 3.50 4.50 4.50 3.50

Overall Score 4.00 3.50 3.00 3.50 3.50 3.50 Qualitative Assessment Positive Positive Neutral Positive Positive Positive

Source: EIU, Markaz Research

The consumer confidence index tracked since 2007 shows a declining trend till 2008. This has continued to February 2009. Political risk ratings have remained largely unchanged except in the case of Kuwait where a triple B rating has been revised to double B.



11

Economist Intelligence Unit provides ratings of various risks for countries and we have used two of its ratings – Political risk ratings and Economic Structure ratings. Economic structure risk ratings for all GCC countries have remained constant through the first half of the year. Political risk ratings have remained largely unchanged except in the case of Kuwait where a triple B rating has been revised to double B. UAE has seen a downgrade from an A rating to triple B. In the final analysis, all the GCC countries rank positive on this score except the UAE which has been downgraded to neutral on account of the change in political risk rating (Table 7). 6. Market Liquidity

Continuing a declining trend which started in 2007, total value traded declined 14% in 2008 to USD 860 bn. The declining trend is driven by the Saudi Arabian bourse. On a YTD basis, liquidity continues to decline, with all markets showing falling value traded. Total value traded for the GCC is at USD 345 bn YTD. Figure: 6 – Value Traded Trends (USD Bn)

Source: Respective stock exchanges Note: Appendix: 4 contains absolute value trends In Saudi Arabia, value traded is at USD 237 bn, down 39% YTD from the same period in 2008. The YTD declines in Kuwait and the UAE are at 45% and 67%, respectively.

Table 8: Market Liquidity Value Traded ($m)


CAGR (2001-2005) 136% 39% 214% 118% 45% 51%

Growth - 2005 133% 86% 663% 345% 85% 54%

Growth - 2006 46% -35% -9% -29% -25% 116%

Growth - 2007 -58% 105% 20% 49% 83% -41%

Growth - 2008 -23% 2% -3% 57% 80% 144%

YTD Growth -39% -45% -67% -48% -51% -82%

Score (0-5) 2.75 2.25 1.75 2.00 2.00 1.50 Qualitative Assessment Neutral Neutral Negative Neutral Neutral Negative

Source: Respective stock exchanges

Continuing a declining trend which started in 2007, total value traded declined 14% in 2008 to USD 860 bn. The YTD declines in Kuwait and the UAE are at 45% and 67%, respectively.



12

7. Regulatory developments In times like these, regulatory reforms and progress will go a long way in instilling investor confidence. Hence, we try and measure GCC capital markets in terms of regulatory progress. We do this through the prism of three factors viz., Presence of an independent regulator for capital markets, Institutional participation in the stock market and foreign investment. A strong regulatory regime implies active presence of all the three. i. Existence of CMA The GCC markets continue to be at an infancy stage from a regulatory perspective. We had reviewed the progress in terms of regulations in our “Leap or Lag: Choices before GCC regulators” report dated 28 Apr 2007 wherein we had reviewed the presence of a Capital Market Authority in all the GCC markets. There were gaps back then. It is sad to note that in spite of the current financial turmoil the same gaps continue to persist. Out of the six GCC markets three of them still have not put in place a Capital Market Authority (read independent regulator). This we believe has higher negative impact in current circumstances leading to several limitations including information disclosure, corporate governance, market ethics, etc

Table 9: Existence of CMA

Country Capital Market Authority Availability Score (0-5)

Saudi Arabia Saudi Arabian Securities and Exchange

Commission Available 4

Kuwait Not Available Not Available 1.5

UAE Securities and Commodities Authority Available 3.5

Qatar Committee formed by members from

QCB, CoCI, Etc Not Available* 2

Oman Capital Market Authority Available 4

Bahrain Not Available Not Available 1.5 Source: Respective stock exchange websites. Note: *. QFMA has been formed, but 2009 documents indicate that the stock exchange continues to be governed by a Committee.

ii. Institutional Investment The level of institutional investment in the GCC remains low, in the range of 0% to 3.5%, when compared to emerging markets (between 10%-25%). Globally, there are three main categories of institutional investors viz., Pension funds, mutual funds and insurance companies. However, in the context of GCC the only credible institutional investor would be mutual funds. Hence, we measure their presence by aggregating the assets under management of all equity funds in a country and dividing it by the market capitalization to arrive at the institutionalization rate. All the GCC countries rank very low ranging from 0.1% to a maximum of 3.5% (Table 10).

Table 10: Institutional Investment

Country AUM

USD Bn Market Cap

(Usd Bn) % Institutionalization Score (0-5)

Saudi Arabia 4.48 295 1.52% 1

Kuwait 4.23 122 3.47% 2

UAE 0.60 138 0.44% 1

Qatar 0.20 56 0.35% 0.5

Oman 0.06 17 0.36% 0.5

Bahrain 0.01 16 0.09% 0

Note: AUM & Market Cap as at end Jun 09

Source: Fund Fact Sheets, Lipper, Zawya, Markaz Research

Out of the six GCC markets three of them still have not put in place a Capital Market Authority The level of institutional investment in the GCC remains low, in the range of 0% to 3.5%, when compared to emerging markets (between 10%-25%).

http://www.markaz.com/MDC2_/DesktopModules/CRD/Attachments/To Leap or To Lag-Markaz Research.pdf

http://www.markaz.com/DesktopModules/CRD/Attachments/To%20Leap%20or%20To%20Lag-Markaz%20Research.pdf



13

In the overall analysis of the regulatory developments, we have ranked Qatar as Negative mainly due to the absence of a Capital Market Authority, low institutional investment.

Table 11: Regulatory Development Score


Overall Score 2.48 2.31 2.81 1.16 2.31 1.16 Qualitative Assessment Neutral Neutral Neutral Negative Neutral Negative

8. The Final Score

Our view on market attractiveness is summarized in the table below. As per the seven force framework assessment, we have upgraded our outlook on Saudi Arabia and Kuwait to Positive (from Neutral), downgraded Qatar from Positive to Neutral, and have maintained our views on the UAE, Oman, and Bahrain at Neutral, Positive, and Negative, respectively (Table 12). Table: 12 – Final Scores

Title Weight Saudi Arabia Kuwait UAE Qatar Oman Bahrain

Economic Factors 20% Neutral Positive Neutral Neutral Neutral Neutral

Valuation Attraction 15% Neutral Neutral Neutral Positive Neutral Positive

Earnings Growth Potential

15% Negative Negative Negative Positive Positive Negative

Investor Sentiment 10% Positive Negative Negative Neutral Positive Neutral

Geopolitical Developments 10% Positive Positive Neutral Positive Positive Positive

Market Liquidity 10% Neutral Neutral Negative Neutral Neutral Negative

Regulatory Developments 20% Neutral Neutral Neutral Negative Neutral Negative

Overall Score 100% Overall Market View Positive Positive Neutral Neutral Positive Negative


We have upgraded our outlook on Saudi Arabia and Kuwait to Positive (from Neutral), downgraded Qatar from Positive to Neutral



14

Appendix 1: 7-Force Framework 1. Economic parameters Even though this is a very broad parameter to evaluate, we have taken in five criterions with equal weights to evaluate the attractiveness of the economy. These five parameters are mostly forward looking and the estimates are arrived at by taking into consideration forecast data from International Institute of Finance (IIF). a. Forecasted Real GDP Growth b. Forecasted Inflation c. Forecasted Fiscal balance as % of GDP d. Forecasted Current account balance as % of GDP e. Historical broad money growth trend (M3) 2. Valuation attraction We have considered the levels of valuation on an historical basis (TTM) as of 2008 to arrive at ascertaining the attractiveness of the markets. The valuation parameters used are: a. Price to Earnings b. Price to Book c. Dividend Yield 3. Earnings growth potential Earnings growth potential provides the forecasted earnings expectation for 2009. We have arrived at these forecasts using a bottoms up approach of aggregating earnings data for more than 600 companies listed in GCC stock markets. 4. Investor sentiment We have used the consumer confidence survey results over a period of time provided by Bayt.com to ascertain the trend in investor sentiments. 5. Geopolitical Developments Due to the changing nature of the geo political scenario in the region we have used two different equally weighted parameters provided by EIU to arrive at a score for geo political risk.

a. Political risk b. Economic structure risk

6. Market liquidity Due to the change in liquidity levels in the markets post the credit crisis, we have included this parameter to evaluate attractiveness in terms of liquidity. We have used value traded to ascertain the same. 7. Regulatory developments As the region continues to be in a infancy stage when it comes to regulation, we have ascertained the level of regulatory developments using three equally weighted parameters. a. Existence of a Capital Market Authority b. Level of institutional investment in the markets (AUM/Market cap) c. Foreign Inclusion Factor levels. All the parameters are scored on a scale of 0-5, wherein 0 would mean the lowest score implying negative assessment and 5 would mean the highest implying positive assessment.

We have taken in five criterions with equal weights to evaluate the attractiveness of the economy. We have ascertained the level of regulatory developments using three equally weighted parameters.



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Appendix 2: Market Performance Recap

1H2009 Review Global Markets The GCC markets had the worst performance of 2008, losing 57% (Figure 7). In terms of recovery in the first half of 2009, the GCC stands at a midway point. MSCI EM has had the largest recovery at 49% YTD, while the S&P 500 has recovered just 9% from the end of 2008. A dramatic fall in crude oil prices, in addition to collapsing international markets, led to the GCC loss; however, crude oil is up 76% YTD, and yet GCC markets remain stagnant. Figure 7: Asset Class Performance (2008/YTD)

Emerging Markets After taking a significant beating in 2008 as the US-led financial crisis rippled across the globe, Emerging market indices have been on an impressive recovery; MSCI EM has regained nearly 50% YTD. Regional indices have followed suit. The MSCI Emerging Asia, MSCI Emerging Europe, and MSCI Emerging Latin America indices have regained 45%, 40%, and 56%, respectively, on a YTD basis after losing 54%, 69%, and 53%, respectively, in 2008.

Source: Thomson DataStream



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Asia Figure 8: Emerging Asia YTD performance (Market-cap weighted)

Source: Thomson DataStream MSCI Emerging Asia has recouped its 2008 losses of 54% in the YTD period. China has contributed the most to the recovery, 17% on a market cap weighted basis. The effects of China’s $586 bn stimulus package are beginning to filter into economic indicators; following a first quarter 2009 real GDP growth of 6.1% (the slowest growth in a decade), expansion sped up in the second quarter, with real GDP growing at 7.9%. Consensus expectation now places China’s full year GDP growth at anywhere from a conservative 7.5%1 to 8.1%2. Some analysts are predicting a strong, almost V-shaped recovery for China in 2009/10, not only due to the concentrated government stimulus, but also because of growing domestic demand. In the first half of 2009, property sales in China were up 53% YoY3. Additionally, new lending (spurred by the stimulus package) surged by an astounding 201% in 1H09 to equal nearly a quarter of GDP, or $1 trillion. India is poised to post an even more impressive recovery; as strong government stimulus and low borrowing cost spur economic growth. Industrial output increased at its fastest pace in 16 months, growing 7.8% in June. India’s economy is set to grow at about 5.4% for 2009 and about 6.5% the following year according to the IMF. A weak monsoon season remains a concern for the agriculture segment, though this accounts for less than 20% of the economy, there is concern of lower farm output could result in a decline in consumption.

1 World Economic Outlook, IMF, July 2009 2 HSBC China 3 Statistics Bureau



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Emerging Europe Figure 9: Emerging Europe YTD performance (Mcap weighted)

Source: Thomson DataStream Emerging Europe has regained 49% YTD, after plunging 69% in 2008. The leader in recovery is Russia; MSCI Russia has contributed 32% of the gain on a market cap weighted basis. The market gain stands in contrast to economic data, which shows an ever-worsening picture. Real GDP slumped 10.9% in the second quarter of the year as slumping energy prices took its toll on the economy. The 2009 fiscal deficit is expected to come in at 8.9% of GDP for the year before declining steadily to 3% of GDP by 20124. The government plans to spend its way out of recession, with fiscal expenditures expected at 26% of GDP, an annual increase of 32%. The government also plans to sell $17.8 bn of debt to foreign investors in 2010 and a further $40.7 bn between 2011-2012.

Latin America Figure 10: Emerging Latin America YTD performance (Mcap weighted)


4 Finance Ministry



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Latin America has been leading the way to recovery among emerging markets; the MSCI EM Latin America index is up 59% YTD, effectively regaining its 53% loss in 2008. Brazil, the largest contributor to the index by market cap, has gained a whopping 68% for the year after being the region’s biggest loser in 2008 (annual loss of 58%). Brazil’s economy is expected to have grown at 1.7% in the second quarter of 20095, and is expected to expand by about 2.5% next year6. This comes on the back of a $100 bn government injection to money markets, in addition to various tax cuts. Inflation has been easing, CPI figures showed a decline to 4.5% in July, marking the third consecutive month of declines, and the lowest rate since December 2007. The Central Bank provided further indications that the economy is recovering by enacting the smallest interest rate cut in five meetings to a record low of 8.75%. Developed Markets Developed markets continue to grapple with the fall-out of the financial crisis; economic indicators and policy makers warn that it may be a long road to recovery. In the UK, rising unemployment and a dampened housing market could spell further trouble for the economy. In the second quarter of 2009, the unemployment rate climbed to 7.8%, the highest level since 19957; rising unemployment could spell trouble for local banks, with a possible increase in impaired loans expected through the latter half of the year and into 2010. Total impaired loans among the four largest institutions (HSBC, Royal Bank of Scotland, Lloyds Banking, and Barclays) reached $50 bn in the first half of 2009 versus $17 bn for 20088. On the housing front, housing prices seem to have stabilized as sellers priced houses at more realistic and affordable levels; housing prices fell by about 3.1% in August in annual terms, representing the smallest annual decline since July 20089. This would indicate a leveling out in the housing market with the ball being in the court of lenders, who remain cautious of providing mortgages for would-be homeowners. Figure 11: Developed Markets YTD performance (Mcap weighted)


5 Ministry of Finance 6 World Economic Outlook July 2009, IMF 7 UK National Statistics Office 8 Bloomberg news 9 Rightmove House Index



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A bleaker than anticipated picture is emerging in Germany where producer prices and inflation indicators are pointing to a thoroughly strained economic state. Producer prices in July fell by 7.8%, vastly overshooting the expected decline of 6.5%. The decline was the sharpest recorded in 60 years. Inflation in Germany posted its first annual decline since 1987, where CPI declined 0.7% in July, mirroring the decline in Euro-CPI. The ECB attributes the decline to falling energy prices, and staves off deflation concerns with an expectation of a return to increasing inflation as energy prices pick up in the latter half of 200910. Not so in Japan where deflation fears persist as weak domestic demand drove inflation to fall by 1.7% in June. Meanwhile, real GDP grew at an annual rate of 3.7% in the second quarter of 2009 on the back of a 6.6% jump in exports; however, GDP growth is expected to slow to an annual rate of 2.9% in the third quarter as lagging corporate earnings growth and rising unemployment dampen the effects of the governments’ $2.2 trillion stimulus package. The unemployment rate rose to 5.4% in June 2009, edging closer to its 2003 high of 5.5%11, as companies downsize their workforces in an effort to cut costs and boosts bottom lines. Concurrently, wages fell by 4.7% on a YoY basis. Japan markets are edging downwards as corporate earnings expectations seem to have been too optimistic in addition to speculation that the recent market rally has been stretched to its limit. Strong government spending, which bolstered corporate activity, pushed the Nikkei 225 to gain 50% in the 5-month period from its 26-year low in March.

U.S A snowstorm of mixed signals continues to emerge from ground-zero of the global financial crisis. On the one hand, you have the Fed, through its FOMC meetings, issuing statements such as “economic activity is leveling out,” and “sustainable economic growth will resume gradually,”12 While on the other hand, economic indicators continue to show declining economic performance, e.g. the unemployment rate reached a new high of 9.5% in June, inching ever closer to its 1982 record high13. CPI data showed that inflation was unchanged in July 2009 following a 0.7% increase in the previous month, indicating that inflation will not be a concern for some time, thereby justifying the Fed’s interest rate stance. The inflation data also indirectly indicates that economic growth has not yet “resumed”. The housing market is showing some signs of stability, housing starts declined 1% in July while building permits, an indicator of future demands, increased 5.8% in July, the fourth consecutive monthly gain, providing a strong signal that the housing market slump may be coming to an end14. On the corporate front, recent data shows that upwards of three-quarters of US corporate earnings in the second quarter of 2009 beat consensus expectations. This slew of “positive” economic and corporate news, which no doubt is the chief cause of the recent rally, does not seem to point to any meaningful and lasting improvement in economic prospects, but rather seems to point to the exceedingly low expectations proffered at the beginning of the year. In other words, “expect the worst and you’ll never be disappointed”.

10 Bloomberg news 11 Statistics Bureau, Japan 12 FOMC statement, August 2009 13 U.S. Bureau of Labor Statistics 14 U.S. Department of Commerce, August 18, 2009



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GCC Markets Figure12: GCC Markets YTD performance (Mcap weighted)

Source: Thomson Datastream GCC markets continue to lag other Emerging markets; MSCI GCC is up 23% YTD, far below the nearly 50% YTD gain in MSCI EM. Saudi has had the strongest recovery thus far, gaining 21% YTD; on a market cap weighted basis, Saudi has contributed 15% of the GCC gain. Bahrain and Qatar continue to languish in negative territory for the year, with losses of 17% and 5%, respectively. Volatility The volatility levels continues to progressively decline since September 2008. During September the volatility levels in the markets increased by 75% and touched a life time high. However, as at the end of December, volatility levels cooled off in the equity markets. Currently in July, we are able to see further cooling off in volatility levels as compared to December 2009. (Figure: 13 & 14) Figure 13: Historical MVX Levels for MSCI GCC as of July 31, 2009




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Figure 14: Historical MVX Levels for MSCI EM as of July 31, 2009


Appendix-3 Earnings Trend (USD Mn) Earnings USD

Mn 2002 2003 2004 2005 2006 2007 2008 2009E

Saudi Arabia 5,240 8,604 12,729 18,381 21,360 22,997 12,294 13,725 United Arab Emirates 1,687 2,457 4,235 9,855 10,741 14,905 13,788 9,230 Qatar 800 1,386 2,283 3,940 4,913 6,000 7,854 6,900 Kuwait 2,618 5,371 6,489 12,864 9,660 16,752 227 4,280 Bahrain 352 786 1,531 1,642 2,118 2,465 899 1,101 Oman 306 306 764 947 1,108 1,713 1,183 1,400 Total GCC 11,004 18,910 28,031 47,628 49,899 64,833 36,245 36,637 Source: Reuters Knowledge, 3000 xtra, MSCI, Markaz Research

Appendix-4 Value Traded Trend (USD Mn)

Value Traded ($m)


2000 17,368 4,461 0 0 558 244 2001 22,238 12,385 413 413 425 196 2002 35,587 23,102 1,051 883 854 215 2003 158,672 56,199 2,031 3,220 1,540 271 2004 471,846 52,824 18,189 6,344 1,971 462 2005 1,100,893 98,288 138,818 28,251 3,655 711 2006 1,611,517 63,946 125,766 20,154 2,735 1,535 2007 682,000 131,000 151,000 30,000 5,000 900 2008 522,000 134,000 146,000 47,000 9,000 2,200 YTD 2009 237,003 51,178 36,992 16,564 3,292 253 Source: Zawya Investor, Markaz Research


Appendix-5 Return Attribution Global Emerging Market & GCC Sectors Performance Break Up

Source: MSCI, Markaz Research | Shaded Cells represent Financials

Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Materials Telecom Utilities IT EM 2008 -52% -35% -61% -53% -17% -62% -59% -43% -42% -50% -53%2009 75% 36% 58% 55% 27% 47% 62% 22% 43% 70% 52%

Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Materials Telecom Utilities IT EM 2008 -3% -1% -11% -11% 0% -6% -9% -5% -1% -5% -53%2009 4% 2% 9% 13% 1% 4% 8% 3% 2% 8% 51%

Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Materials Telecom Utilities IT GCC 2008 -64% -29% -56% -55% 0% -54% -64% -47% -31% 0% -56%2009 47% 11% 51% 8% 0% 31% 42% 26% 8% 0% 21%

Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Materials Telecom Utilities IT GCC 2008 0% -1% -1% -29% 0% -4% -17% -4% 0% 0% -56%2009 0% 0% 2% 3% 0% 2% 11% 4% 0% 0% 23%

Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Materials Telecom Utilities IT GCC 2008 2% 1% 10% -18% 0% 2% -8% 1% 1% 5% -3% 2009 -3% -2% -7% -9% -1% -1% 3% 1% -2% -8% -28%

Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Materials Telecom Utilities IT TotalEM 5% 6% 15% 23% 3% 8% 13% 14% 4% 11% 100%GCC 0% 2% 3% 44% 0% 7% 26% 15% 2% 0% 100%

Difference GCC Vs EM -4% -3% -11% 21% -3% -1% 13% 2% -2% -11% 0%

Emerging Markets - Absolute Returns

GCC Markets - Absolute Returns

Emerging Markets - Weighted Returns

GCC markets - Weighted Returns

Underperformance/Outperformance of GCC over EM

Weights



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Global Emerging Market & GCC Financials Sector Performance Break Up

Source: MSCI, Markaz Research | Shaded Cells represent Banks

Banks Div Fin Insurance Real Estate Financials EM2008 -52% -57% -46% -67% -53%2009 54% 59% 48% 72% 55%

Banks Div Fin Insurance Real Estate Financials EM2008 -35% -7% -6% -5% -53%2009 38% 7% 6% 5% 55%

Banks Div Fin Insurance Real Estate Financials GCC2008 -51% -63% -72% -69% -55%2009 11% -14% 28% 10% 8%

Banks Div Fin Insurance Real Estate Financials GCC2008 -37% -7% -1% -9% -55%2009 8% -2% 0% 1% 8%

Banks Div Fin Insurance Real Estate Financials GCC2008 -3% 0% 5% -4% -2%2009 -29% -8% -6% -4% -47%

Banks Div Fin Insurance Real Estate Financial ServicesEM 70% 12% 12% 7% 23%GCC 77% 11% 0% 11% 44%Difference GCC Vs EM 8% 0% -12% 4% 21%

Emerging Markets Financials - Absolute Returns

GCC Markets Financials - Absolute Returns

Emerging Markets Financials - WR

GCC markets Financials - WR

Underperformance/Outperformance of GCC over EM

Weights



24

Appendix-6 Market Performance

Source: MSCI, Markaz Research

Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08YTD - Till July 09

$1 Invested in 2000

1 BRAZIL -21 38 23 -44 62 -14 -22 -34 103 30 50 41 75 -58 69 3.632 CHILE -6 -16 2 -31 36 -17 -6 -22 80 25 18 26 21 -37 54 2.883 CHINA -23 35 -26 -44 10 -32 -26 -16 81 -1 16 78 63 -52 50 2.704 COLOMBIA -28 7 38 -45 -19 -41 37 18 59 126 102 11 13 -28 50 15.955 CZECH REPUBLIC -21 29 -24 -1 4 1 -4 41 54 77 43 30 52 -45 27 7.266 EGYPT 11 46 25 -32 80 -46 -44 -5 81 119 154 15 55 -54 28 5.597 HUNGARY -19 104 93 -9 11 -28 -10 29 31 88 16 31 13 -62 39 2.538 INDIA -32 -4 10 -23 85 -23 -21 6 74 16 35 49 71 -65 70 3.479 INDONESIA 7 25 -75 -32 92 -63 -11 38 70 45 13 70 51 -58 90 7.0210 ISRAEL 22 -4 23 -8 56 25 -32 -32 56 18 25 -7 36 -31 36 1.2611 KOREA -5 -38 -67 138 90 -50 46 7 33 20 54 11 30 -56 46 3.5812 MALAYSIA 4 25 -69 -32 112 -17 2 -3 23 12 -2 33 42 -43 35 1.9413 MEXICO -22 17 52 -34 79 -22 16 -15 30 45 45 39 9 -44 27 2.9214 MOROCCO 19 33 33 22 -14 -24 -17 -13 43 18 9 63 44 -13 -1 2.6815 PERU 22 -3 18 -42 16 -27 15 27 88 0 29 52 86 -42 36 7.8416 PHILIPPINES -12 17 -63 13 2 -45 -20 -30 39 24 20 55 38 -54 49 1.7117 POLAND -5 57 -24 -8 31 -5 -29 -1 33 59 21 35 23 -56 17 1.5418 RUSSIA -28 151 112 -83 246 -30 53 14 70 4 69 54 23 -74 54 3.9419 SOUTH AFRICA 17 -20 -11 -30 53 -20 -20 23 40 41 24 17 15 -40 30 2.5220 TAIWAN -30 39 -7 -21 52 -45 9 -25 40 7 3 16 5 -49 49 1.1721 THAILAND -6 -38 -74 11 47 -57 3 24 134 -4 5 7 41 -50 48 3.3322 TURKEY -6 32 111 -54 244 -46 -34 -36 122 38 52 -9 70 -63 61 1.7923 EM -7 4 -13 -28 64 -32 -5 -8 52 22 30 29 36 -54 49 2.5324 WORLD 19 12 14 23 23 -14 -18 -21 31 13 8 18 7 -42 14 0.8625 S&P 500 34 20 31 27 20 -10 -13 -23 26 9 3 14 4 -38 9 0.75

1 Saudi Arabia 7 12 28 -29 45 11 8 4 76 85 104 -53 41 -57 20 2.602 UAE -18 24 15 32 88 103 -40 34 -56 14 2.863 Kuwait 39 40 39 -40 -9 -7 28 39 102 34 79 -12 25 -38 9 6.374 Bahrain 17 49 -5 1 -18 -2 3 28 33 24 1 24 -34 -16 1.485 Qatar 35 -1 -8 37 37 70 65 70 -36 34 -30 0 5.376 Oman 8 26 141 -52 10 -20 -24 26 42 24 44 14 62 -40 12 3.02

Emerging Market Performance

GCC Market Performance

Emerging Markets Returns


Appendix-7 Economic Factors Real GDP Growth Saudi Arabia Kuwait UAE Qatar Oman Bahrain Real GDP Growth (2000-2008 Avg) % GDP 4.0 10.6 10.0 10.62 5.7 6.1

Real GDP Growth (2008 e) % GDP 4.6 6.3 7.4 16.40 6.2 6.1

Real GDP Growth (2009 f) % GDP -IMF -0.9 -1.1 -0.6 17.98 3.0 2.6

-5.54 -7.46 -8.02 1.59 -3.16 -3.48

Score 0.50 0.20 0.10 4.75 1.50 1.50

Inflation Saudi Arabia Kuwait UAE Qatar Oman Bahrain Inflation (2000-2008 Avg) annual change 1.7 3.3 6.1 7.0 2.2 1.4

Inflation (2008 e) annual change 9.9 10.5 11.5 15.0 12.6 3.5

Inflation (2009 f) annual change 5.5 6.0 2.0 9.0 6.2 3.0

Score 3.75 3.50 4.50 2.75 3.50 4.25

Fiscal Balance Saudi Arabia Kuwait UAE Qatar Oman Bahrain Fiscal Balance (2000-2008 Avg)-% to GDP 10 31 14 9 9 3

Fiscal Balance (2008 e)-% to GDP 22 22 28 15 15 8

Fiscal Balance (2009 f) - % to GDP-IIF -8 -2 0 -5 -9 -7

-30.10 -23.50 -28.10 -20.30 -24.30 -14.50

Score 2.75 4.00 4.50 3.00 1.75 2.25

Current Account Balance Saudi Arabia Kuwait UAE Qatar Oman Bahrain Current Account Balance (2000-2008 Avg) - % to GDP 19 36 14 30 11 9

Current Account Balance (2008 e) - % to GDP 29 45 16 35 6 11

Current Account Balance (2009 f) - % to GDP-IIF -2 26 -6 7 0 2

Score 0.50 4.50 0.10 2.25 1.00 1.50

Broad Money Growth Saudi Arabia Kuwait UAE Qatar Oman Bahrain

Average (1998-2002)-% change 7 5 13 8 6 10

Average (2003-2008)-% Change 15 14 25 30 18 18

2008 16 13 17 28 20 20

1H09 8 14 3 -3 8 0

Score 3.00 4.50 1.50 0.50 3.00 1.00



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Disclaimer This report has been prepared and issued by Kuwait Financial Centre S.A.K (Markaz), which is regulated by the Central Bank of Kuwait. The report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The information and statistical data herein have been obtained from sources we believe to be reliable but no representation or warranty, expressed or implied, is made that such information and data is accurate or complete, and therefore should not be relied upon as such. Opinions, estimates and projections in this report constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinion of Markaz and are subject to change without notice. Markaz has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors are urged to seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and to understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Investors should be able and willing to accept a total or partial loss of their investment. Accordingly, investors may receive back less than originally invested. Past performance is historical and is not necessarily indicative of future performance. Kuwait Financial Centre S.A.K (Markaz) does and seeks to do business, including investment banking deals, with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.


Strategic Research Kuwait Investment Sector (Jun-09) Missing The Rally (Jun-09) Shelter in a Storm (Mar-09) Diworsification: The GCC Oil Stranglehold (Jan-09) This Too Shall Pass ( Jan-09) Fishing in Troubled Waters(Dec-08) UAE Outlook (Oct-08) Down and Out: Saudi Stock Outlook (Oct-08) Kuwait Stocks: Fair Value Not Far Away (Sept-08) Mr. GCC Market-Manic Depressive (Sept-08) Global Investment Themes (June-08) To Yield or Not To Yield (May-08) The Golden Portfolio (Apr-08) Banking Sweet spots (Apr-08) The “Vicious Square” Monetary Policy options for Kuwait (Feb-08) Outlook 2008: GCC (Jan-08) China and India: Too Much Too Fast (Oct-07) A Potential USD 140b Industry: Review of Asset Management industry in Kuwait (Sep-07) A Gulf Emerging Portfolio: And Why Not? (Jun-07) To Leap or To Lag: Choices before GCC Regulators (Apr-07) Derivatives Market in GCC (Mar-07) Managing GCC Volatility (Feb-07) GCC for Fundamentalists (Dec-06) GCC Leverage Risk (Nov-06) GCC Equity Funds (Sep-06)

Periodic ResearchTitle Frequency

Markaz Daily Morning Brief Daily Markaz Kuwait Watch Daily Daily Fixed Income Update Daily KSE Market Weekly Snapshot Weekly KSE Market Weekly Review Weekly International Market Update Weekly Mena Mergers & Acquisitions Monthly Option Market Activity Monthly GCC Quants Monthly Thought Speaks Monthly Market Review Monthly Investment Outlook Quarterly GCC Equity Funds Quarterly

GCC Power GCC Ports Real Estate

Office Investment in KSA (Jul-09) Saudi Arabia – Residential Real Estate Outlook (Jun-09) Saudi Arabia (Sep-08) Abu Dhabi (July-08) Algeria (Mar-08) Jordan (Mar-08) Kuwait (Feb-08) Lebanon (Dec-07) Qatar (Sep-07) Saudi Arabia (Jul-07) U.S.A. (May-07) Syria (Apr-07)

Sector Research

Real Estate Strategic Research

• Real Estate Earning -2009 (May-09) • Supply Adjustments Are we done? (Apr-09) • Dubai Real Estate Meltdown (Feb-09)

Markaz Research Offerings


Bahrain • Gulf Finance House (Oct-08) • Esterad Investment Company

(Aug-08) • Bahrain Islamic Bank (Aug-08) • Ithmaar Bank (July-08) • Tameer (July-08) • Batelco (July-08)

Research Coverage Market Cap as % of total Market cap 29%

Qatar • United Development Co. (Feb-09) • Qatar Fuel Co. (Dec-08) • Qatar Shipping Co (Dec-08) • Barwa Real Estate Co. (Nov-08) • Qatar Int’l Islamic bank (Nov-08) • Qatar Insurance Co. (Nov-08) • Qatar Telecom (Oct-08, Jun-09) • Qatar Gas Transport Co. (Oct-08) • Doha Bank (Aug-08) • Qatar National Bank (Aug-08, Feb-09)• QEWC (July-08) • QISB (July-08) • Masraf Al-Rayan (Jun-08) • Commercial Bank of Qatar (Jun-08) • Industries Qatar (May-08, Apr-09) Research Coverage Market Cap as % of total Market cap 95%

UAE • Sorouh Real Estate PJSC (Feb-09) • Gulf Cement Company (Jan-09) • Abu Dhabi National Hotels (Dec-08) • Dubai Investments (Dec-08) • Arabtec Holding (Dec-08) • Air Arabia ( Nov-08) • Union Properties (Nov-08) • Dubai Islamic bank (Oct-08) • Aldar Properties (Sept-08, Feb-09) • Union National Bank (Aug-08) • Dubai Financial Market (July-08) • Emaar Properties (July-08) • Dana Gas (July-08) • FGB (July-08) • DP World (July-08, Jun-09) • ADCB (Jun-08, Jun-09) • Etisalat (Jun-08) • NBAD (May-08, Feb-09) Research Coverage Market Cap as % of total Market cap 48%

Oman • Galfar Engineering & Cont. (Nov-08) • Oman Telecommunications (Sept-08) • Bank Muscat(Sept-08) • Oman cement (Sept-08) • Raysut Cement Company (Aug-08) • National Bank of Oman (Aug-08) • OIB (July-08)


Egypt • Commercial Int’l Bank (Oct-08) • Orascom Telecom (Sep-08) • Mobinil (Sep-08) • Telecom Egypt (Aug-08) • EFG-Hermes (Jun-08)


Jordan • Arab Bank (Sept-08) • Cairo Amman Bank (Oct-08) Research Coverage Market Cap as % of total Market cap 39%

Saudi Arabia • Saudi Investment Bank (Jan-09) • Savola Group (Dec-08) • Kingdom Holding Co (Dec-08) • Al Marai Company (Nov-08) • Saudi Kayan Petro Co. (Aug-08) • Al Rajhi Bank (Aug – 08, Aug-09) • Arab National Bank (July-08) • Saudi Telecom Co. (Jun-08, May-09) • SAFCO (Jun-08) • Banque Saudi Fransi (Jun-08) • Riyad Bank (Jun-08, July-09) • Samba Financial Group(May-08, Feb-

09) • Sabic (May-08, Mar-09) Research Coverage Market Cap as % of total Market cap 60%

Company Research

Markaz Research is available on: Bloomberg Type “MRKZ” <GO>, Thomson Financial, Reuters Knowledge, Zawya Investor & Noozz. To obtain a print copy, kindly contact: Kuwait Financial Centre “Markaz” Client Relations & Marketing Department Tel: +965 2 224 8000 Ext. 1804 Fax: +965 22414499 Postal Address: P.O. Box 23444, Safat, 13095, State of Kuwait Email: [email protected] markaz.com

Markaz Research Offerings

Will GCC catch up with GEM? -What is left for 2009

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