Kuwait Financial Centre “Markaz” R E S E A R C H Mixed Month, Red Year GCC ends on a mixed note December 2011 Returns (%) S&P 500 MSCI World MSCI EM S&P GCC 0.9 -0.2 -1.3 2.5 World markets ended the year on a tenuous note, with most markets logging a negative month, as many questions remain unaddressed going into the new year. Crude oil ended the year up 13%, but posted a decline of 2.8% in December. The CRB Commodity Index ended the year with a decline of 7% and was down 1.6% in December. Despite a US credit downgrade by S&P, US Treasuries were the best performing asset class in 2011 (according to Reuters data), gaining 17% (for 10-yr Benchmark). S&P has put 15 Euro Area countries (including France and Germany) on notice for a possible downgrade, citing a high probability for a recession in 2012 on account of fiscal tightening and poor lending conditions. The broad index shed 0.17% in December bringing the full year loss to 7.6%. GCC markets had a positive month; the S&P GCC Composite was up 2.55% due to strong performance from Saudi Arabia and Qatar, which gained 5.13% and 2.17%, respectively, for the month. The largest decline was in Dubai, down 1.85% in December. For the year, the S&P GCC fell 8.5% as all markets ended in the red, except Qatar which managed a modest gain of 1%. Double-digit declines were seen everywhere except Saudi Arabia which limited its loss to 3%. The biggest loser was Bahrain, where political turmoil led to a 20% decline on the index. Liquidity was up, with value and volume traded expanding 47% and 62%, respectively, for December. For 2011, value traded in the GCC came to USD354bn, a 19% increase and the first year of liquidity expansion since 2006. Saudi and Qatar were the only markets that saw positive liquidity growth though, logging increases of 44% and 22%, respectively, with Qatar usurping the position of second most liquid market in the GCC. Kuwait saw its liquidity decline by 50% to USD 22bn. Risk in the GCC (as measured by the Markaz Volatility Index – MVX) declined 34% in December, with a 2011 annual expansion of 16%. Valuations have remained in a steady range as markets trade sideways. Qatar continue to trade in the 10x-15x range. January 2012 Research Highlights: Review of global and regional stock markets for the month of December 2011 Markaz Research is available on Bloomberg - Type “MRKZ” <Go> Thomson Research, Reuters Knowledge Nooz Zawya Investor ISI Emerging markets Capital IQ FactSet Research Connect TheMarkets.com M.R. Raghu CFA, FRM Head of Research +965 2224 8280 [email protected]Layla Jasem Al-Ammar Assistant Manager +965 2224 8281 [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
Mixed Month, Red Year GCC ends on a mixed note
December 2011 Returns (%)
S&P 500 MSCI World MSCI EM S&P GCC
0.9 -0.2 -1.3 2.5
World markets ended the year on a tenuous note, with most markets logging a negative month, as many questions remain unaddressed going
into the new year. Crude oil ended the year up 13%, but posted a decline
of 2.8% in December. The CRB Commodity Index ended the year with a decline of 7% and was down 1.6% in December.
Despite a US credit downgrade by S&P, US Treasuries were the best
performing asset class in 2011 (according to Reuters data), gaining 17% (for 10-yr Benchmark).
S&P has put 15 Euro Area countries (including France and Germany) on notice for a possible downgrade, citing a high probability for a recession in
2012 on account of fiscal tightening and poor lending conditions.
The broad index shed 0.17% in December bringing the full year loss to
7.6%.
GCC markets had a positive month; the S&P GCC Composite was up 2.55% due to strong performance from Saudi Arabia and Qatar, which gained
5.13% and 2.17%, respectively, for the month. The largest decline was in Dubai, down 1.85% in December.
For the year, the S&P GCC fell 8.5% as all markets ended in the red, except Qatar which managed a modest gain of 1%. Double-digit declines were
seen everywhere except Saudi Arabia which limited its loss to 3%. The biggest loser was Bahrain, where political turmoil led to a 20% decline on
the index.
Liquidity was up, with value and volume traded expanding 47% and 62%,
respectively, for December.
For 2011, value traded in the GCC came to USD354bn, a 19% increase and
the first year of liquidity expansion since 2006. Saudi and Qatar were the only markets that saw positive liquidity growth though, logging increases of
44% and 22%, respectively, with Qatar usurping the position of second most liquid market in the GCC. Kuwait saw its liquidity decline by 50% to
USD 22bn.
Risk in the GCC (as measured by the Markaz Volatility Index – MVX)
declined 34% in December, with a 2011 annual expansion of 16%.
Valuations have remained in a steady range as markets trade sideways. Qatar continue to trade in the 10x-15x range.
January 2012
Research Highlights:
Review of global and regional stock markets for the month of
GCC Markets Review – December 2011 GCC markets had a positive month to end the year; the S&P GCC Composite
was up 2.55% due to a strong showing in Saudi Arabia and Qatar, which gained 5.13% and 2.17%, respectively, for the month. The largest decline
was in Dubai, down 1.85% in December.
For the year, the S&P GCC shed 8.5% as all markets ended in the red,
except Qatar which managed a modest gain of 1%. Double-digit declines were seen in all markets except Saudi Arabia which declined 3%. The
biggest loser was Bahrain, where political turmoil led to a 20% decline on the index.
Table: 1 - Market Indicators
Indicators M. Cap
(USD Bn) Last Close Monthly
Return % 2011% 2010 % P/E TTM
Saudi (TASI) 336 6,386 5.13 -3.07 8 12
Kuwait SE WT.INDEX 107 406 -1.80 -16.89 26 14
Qatar(Doha SM) 97 8,779 2.17 1.12 25 11
Abu Dhabi (ADI) 71 2,402 -1.74 -11.68 -1 7
Dubai (DFMGI) 47 1,353 -1.85 -17.00 -10 9
Bahrain (BAX) 17 1,144 -1.67 -20.15 -2 8
Oman(Muscat SM) 14 5,704 5.07 -15.69 6 12
S&P GCC Composite Index 231 92 2.55 -8.47 13 12
Source: Excerpt from Markaz ‘Daily Morning Brief’ Jan 2nd , 2012
Both Fitch and Moody’s rating agencies downgraded Egypt’s sovereign rating into Junk status in December, citing protracted political unrest which
has delayed any economic recovery, eroded foreign reserves, exacerbated debt issues and heavily impacted investor confidence.
MSCI kept Qatar and the UAE listed as Frontier Markets citing low liquidity
and foreign investor limits in Qatar. However, both countries are on the list
for a mid-year review for possible upgrades to Emerging Market status.
Saudi Arabia
The Saudi exchange is aiming to finalize rules concerning foreign investors
on the Tadawul by mid-January, with a goal to implement the rules by 1Q or 2Q 2012.
M3 growth decelerated to 12% in November following a growth of 14% in
October while foreign assets surged 21% YoY.
The Saudi Electricity Company (SEC) is expected to launch the National
Company for Power Transmission as part of the restructuring of the firm which has seen the creation of six firms; to date, the restructuring plan has
cost USD53mn in an effort to create a more competitive and efficient power
sector in the Kingdom. SEC shed 4.7% for the month.
Saudi British Bank (SABB) was placed on review for a possible downgrade by Moody’s; reasons for the possible downgrade included lagging
profitability and capitalization metrics, relatively high risk concentrations and low government shareholding. The bank lost 9% for the month.
For the year, the S&P GCC
shed 8.5% as all markets ended in the red, except
Qatar
MSCI kept Qatar and the
UAE listed as Frontier Markets citing low liquidity
R E S E A R C H January 2012
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Prince Al-Waleed bin Talal acquired a stake in social networking service ‘Twitter’ for about USD 300mn. The investment is expected to garner an
IRR of 20% for Kingdom Holding. The stock tumbled 18% for the
month.
United Arab Emirates
UAE bank deposits fell for the fifth consecutive month in November, pushing
interbank rates up and squeezing bank margins.
Aldar finalized a USD 4.6bn property deal with the government of Abu Dhabi to alleviate debt obligations. The deal covers property and
infrastructure projects which are of strategic interest to the government;
USD 1.4bn will be used to pay off existing debt obligations while the remaining balance will be allotted over the coming four years. Aldar has
USD 2.25bn in debt obligations in 2013 and 2014. The deal led to a rally in the stock, which gained 6.52% for December.
Emaar Properties has placed Dubai Mall as collateral for a USD 1 bn loan in
order to refinance upcoming debt obligations. The loan has two tranches; a
five-year and eight-year amortizing loan. Emaar gained 5.45% for the month.
Kuwait
The country overtook Qatar to be China’s leading LNG supplier in November, surging 64% YoY to 80,500 tons. Kuwait has been aggressively
expanding its market share in China, with crude oil shipments increasing 11-fold between 2004-20102.
The government budget surplus reached USD41.6bn for the first eight
months of the year (to November). Revenues were up 41.6% to USD 67bn.
Inflation hit a 16-month low of 4.2% in November and is expected to
remain steady into 2012.
The Kuwaiti government signed a USD 275mn deal with Hammerson, a
property group, to purchase a 9-story office development in London’s financial district. The building is on a site previously occupied by the London
Stock Exchange and draws an investment yield of approximately 4.75%.
Global Investment House (Global) announced that creditors had agreed to a
request to delay repayment of debt principal until June 2012 in addition to deferring increases in interest payments to the same date as it continues to
struggle with off-loading distressed assets in order to pay down debt.
Gulf Bank was upgraded by S&P to ‘BBB’ from ‘-BBB’ and given a ‘Positive’ outlook, citing improved asset quality and capitalization. The bank gained
3.92% for the month.
Qatar
The Qatar Financial Markets Authority has adopted new rules concerning
listing and IPO activities on the secondary market in order to further
consolidate activities within the market and regulate the various parties. The new rules will also encourage small-medium enterprises (SMEs) to list.
2 Zawya
UAE bank deposits fell for
the fifth consecutive month in November, pushing
interbank rates up and
squeezing bank margins
The Kuwait government
budget surplus reached
USD41.6bn for the first eight months of the year
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The secondary market has already begun trading in short-term government
debt in order to boost liquidity, while bonds and Sukuks are set to follow.
Liquidity, Risk & Valuation
Liquidity was up ahead of year-end, with value and volume traded
expanding 47% and 62%, respectively, for December. All markets saw
increases in liquidity; Kuwait and Saudi Arabia saw value traded increase by 68% and 39%, respectively, while Qatar liquidity surged 183%.
For 2011, value traded in the GCC came to USD354bn, a 19% annual
increase and the first year of liquidity expansion since 2006. Saudi and
Qatar were the only markets that saw positive liquidity growth, logging increases of 44% and 22%, respectively, with Qatar usurping the position
of second most liquid market in the GCC. Kuwait saw its liquidity decline by 50% to USD 22bn.
Risk in the GCC (as measured by the Markaz Volatility Index – MVX)
declined 34% in December, with a 2011 annual expansion of 16%. Abu
Dhabi saw its December MVX nearly double while MVX Kuwait was 16% for the month, but 34% for the year.
Valuations have remained in a steady range as markets trade sideways.
Qatar continue to trade in the 10x-15x range.
Chart Pack – GCC Figure: 12 – Saudi Arabia – PE Band Figure: 13 – Dubai – PE Band
Figure: 18 – Average Daily Value Traded (USD mn) – Dec 2011
Figure 19: GCC Value Traded (USD bn)
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Figure: 20 - Risk & Return – GCC Vs Developed & EM
Figure: 21 – Comparative MVX Levels – December 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.
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