Kuwait Financial Centre “Markaz” R E S E A R C H Markets in ‘Risk-Off’ Mode Global Turbulence weighs down GCC markets May 2012 Returns 1 (%) S&P 500 MSCI World MSCI EM S&P GCC -6.05 -8.70 -11.5 -6.14 May 2012 is easily the most eventful month this year. Elections in France, Greece & Egypt, Moody’s downgrade of 26 Italian banks, rumors of bank run & the exit from Euro by Greece, trading fiasco at JP Morgan, the rise & fall of Facebook IPO, cut in reserve ratio by Chinese central bank and Premier’s indications of policy action to support economy, downgrade of Japan’s sovereign rating, VIX increasing 41%, Euro hitting 2 year low versus dollar, precious metals & oil trading near 2012 lows…. The World broad index was down 8.7% in May as investors sold-off equities and flocked to safer assets. Europe, which is the epicenter of crisis, witnessed deep cuts with MSCI Europe losing 12.5% for the month. The flight to safety resulted in 10-year US Treasury yield hitting an all-time low of 1.642% 2 . Investors clearly pushed the panic button and moved to ‘Risk-Off’ mode with price correction being witnessed in most of the asset classes. ‘Safe haven’ gold too saw a cut of 6%. The winner clearly is the US dollar index which was up 5.4% in May. Euro (6.6%), Brazilian Real (5.7%), Russian Rouble (12.2%), and Indian Rupee (6.5%) suffered major losses against the USD. OECD, in its Economic Outlook report, held its forecast for global growth at 3.4%, but lowered its outlook for the Eurozone to a 0.1% contraction. OECD expects US to grow at 2.4% in 2012 while growth across the OECD countries is projected to slow to 1.6% in 2012 (2011: 1.8%). GCC markets were down in May, losing 6.1% after a decrease of 3.2% in April. Global factors weighed down on GCC with all the markets ending in Red. Dubai was the largest loser shedding 9.8% for the month, followed by Saudi Arabia which lost 7.7%. Saudi has been the best performing market YTD, with a gain of 8.7%. Kuwait lost 2.2% May cutting its yearly gain to 0.71%. Volumes in the GCC decreased by 25% MoM while Value Traded decreased 38% over the month to USD 49bn. This was on the back of 22% MoM drop in volumes and 16% decrease in Value Traded in April. Saudi Arabia, which accounted for 88% of GCC’s total value traded, witnessed a 40% MoM drop in value traded. Risk in the GCC (as measured by the Markaz Volatility Index – MVX) dropped 7% in May, probably because of reduced market activity. Risk in Kuwait was up 42% for the month while MVX Abu Dhabi shed 42%. Valuations dropped in the GCC as markets suffered two consecutive monthly losses. Most countries traded near the 8x-12x range. 1 All May Returns are calculated from the 30 th of May 2012, closing values 2 http://blogs.wsj.com/marketbeat/2012/05/30/fear-drives-10-year-treasury-yield-to-record-low/ June 2012 Research Highlights: Review of global and regional stock markets for the previous month 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]Madhu Soothanan Senior Research Analyst +965 2224 8000 Ext: 4603 [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
Transcript
Kuwait Financial Centre “Markaz”
R E S E A R C H
Markets in ‘Risk-Off’ Mode
Global Turbulence weighs down GCC markets
May 2012 Returns1 (%)
S&P 500 MSCI World MSCI EM S&P GCC
-6.05 -8.70 -11.5 -6.14
May 2012 is easily the most eventful month this year. Elections in France,
Greece & Egypt, Moody’s downgrade of 26 Italian banks, rumors of bank
run & the exit from Euro by Greece, trading fiasco at JP Morgan, the rise &
fall of Facebook IPO, cut in reserve ratio by Chinese central bank and
Premier’s indications of policy action to support economy, downgrade of
Japan’s sovereign rating, VIX increasing 41%, Euro hitting 2 year low
versus dollar, precious metals & oil trading near 2012 lows….
The World broad index was down 8.7% in May as investors sold-off equities
and flocked to safer assets. Europe, which is the epicenter of crisis,
witnessed deep cuts with MSCI Europe losing 12.5% for the month. The
flight to safety resulted in 10-year US Treasury yield hitting an all-time low
of 1.642%2.
Investors clearly pushed the panic button and moved to ‘Risk-Off’ mode
with price correction being witnessed in most of the asset classes. ‘Safe
haven’ gold too saw a cut of 6%. The winner clearly is the US dollar index
which was up 5.4% in May. Euro (6.6%), Brazilian Real (5.7%), Russian
Rouble (12.2%), and Indian Rupee (6.5%) suffered major losses against
the USD.
OECD, in its Economic Outlook report, held its forecast for global growth at
3.4%, but lowered its outlook for the Eurozone to a 0.1% contraction.
OECD expects US to grow at 2.4% in 2012 while growth across the OECD
countries is projected to slow to 1.6% in 2012 (2011: 1.8%).
GCC markets were down in May, losing 6.1% after a decrease of 3.2% in
April. Global factors weighed down on GCC with all the markets ending in
Red. Dubai was the largest loser shedding 9.8% for the month, followed by
Saudi Arabia which lost 7.7%. Saudi has been the best performing market
YTD, with a gain of 8.7%. Kuwait lost 2.2% May cutting its yearly gain to
0.71%.
Volumes in the GCC decreased by 25% MoM while Value Traded decreased
38% over the month to USD 49bn. This was on the back of 22% MoM drop
in volumes and 16% decrease in Value Traded in April. Saudi Arabia, which
accounted for 88% of GCC’s total value traded, witnessed a 40% MoM drop
in value traded.
Risk in the GCC (as measured by the Markaz Volatility Index – MVX)
dropped 7% in May, probably because of reduced market activity. Risk in
Kuwait was up 42% for the month while MVX Abu Dhabi shed 42%.
Valuations dropped in the GCC as markets suffered two consecutive
monthly losses. Most countries traded near the 8x-12x range.
1 All May Returns are calculated from the 30th of May 2012, closing values 2 http://blogs.wsj.com/marketbeat/2012/05/30/fear-drives-10-year-treasury-yield-to-record-low/
GCC Markets Review – May 2012 GCC markets were down in May, losing 6.1% after a decrease of 3.2% in
April. Global factors weighed down on GCC with all the markets ending in Red. Dubai was the largest loser shedding 9.8% for the month, followed by
Saudi Arabia which lost 7.7%. Saudi has been the best performing market YTD, with a gain of 8.7%. Kuwait lost 2.2% May cutting its yearly gain to 0.71%.
Market Indicators
Indicators
M. Cap
(USD Bn) Last Close
Monthly
Return % YTD % 2011%
P/E
TTM
Saudi (TASI) 365 6,975 -7.72 8.69 -3.07 12
Kuwait SE WT.INDEX 104 408 -2.15 0.71 -16.89 16
Qatar(Doha SM) 98 8,473 -2.65 -3.49 1.12 9
Abu Dhabi (ADI) 76 2,450 -2.16 1.98 -11.68 7
Dubai (DFMGI) 48 1,471 -9.83 8.66 -17.00 10
Bahrain (BAX) 17 1,137 -1.36 -0.58 -20.15 8
Oman(Muscat SM) 14 5,787 -1.40 1.61 -15.69 12
S&P GCC Composite Index 241 96 -6.14 4.28 -8.47 12
Source: Excerpt from Markaz ‘Daily Morning Brief’ May 31st , 2012
OPEC’s May Oil output has reportedly hit its highest since 2008 as Saudi
Arabia maintained high production rates despite falling prices. OPEC’s
production averaged 31.8mn bpd, up from 31.75mn bpd in April. Earlier, Saudi Arabia’s Petroleum Minister was quoted as saying that the Kingdom
wants an oil price of around USD 100/bl and would like to see inventories rise before demand picks up in the second half of the year.
Saudi Arabia
The IMF, after its latest assessment, projects Saudi Arabia to grow by 6% in 2012 with private sector increasing its role in the economy. IMF expects fiscal surplus at 17% of GDP and external surplus at 27% of GDP. Amidst
falling crude prices, finance minister announced that Saudi would be able to
balance its budget even if oil prices fall to less than $80/bl.
Late last month MSCI announced its decision to reintroduce MSCI Saudi Arabia Domestic Indices and also make changes to MSCI GCC Countries &
MSCI Arabian Markets Index. The indices will be added on June 26, 2012.
Saudi Arabia announced its plans to invest USD 53bn in air transport industry in the next five years. The Kingdom also launched a tender to build
a new metro system in Riyadh.
Saudi Electricity Co. has signed a USD 1.3bn contract to build a power plant northwest of Riyadh. The 2,175 MW plant is to be built in 36 months. SEC
lost 10% for the month. Advanced Petrochemicals Co. signed an MOU with Bayegan Group for
development of USD 1bn propane dehydrogenation & polypropylene plant in southern Turkey. The company will hold a 70% stake in the project. Advanced Petrochemicals Co. shed 11.4% in May.
Almarai Co. announced a 5-year investment program worth USD 4.2bn to
expand in all areas of farming, manufacturing, distribution and logistics. The company gained 2.2% for the month.
GCC markets continued its
losses in May, losing 6.1%
IMF expects Saudi Arabia to
grow by 6% in 2012 with
fiscal surplus of 17% of
GDP
R E S E A R C H June 2012
Kuwait Financial Centre “Markaz”
6
United Arab Emirates
As per Dubai's Economic Council, Dubai is projected to grow by around 4-
5% in 2012, fuelled by strong performance of trade and non-hydrocarbon
sectors. Meanwhile, IMF said GREs in the UAE have to repay USD 30bn of maturing loans this year and face a "significant" amount of debt falling due
in 2014 & 2015.
It was reported that Abu Dhabi has picked four banks to advise on merger of Aldar Properties and Sorouh Real Estate. Goldman Sachs & NBAD will
advise a steering committee while Morgan Stanley & Credit Suisse will
advise the developers. Aldar lost 11.2% during the month while
Sorouh shed 13.3%
Abu Dhabi government has selected Arabtec Holding consortium that
includes Greek and Turkish firms as preferred bidders for a USD 3bn airport expansion contract. Arabtec shares lost 11.7% in May.
Kuwait
S&P affirmed its 'AA/A-1+' long and short-term foreign and local currency
ratings on Kuwait with Stable outlook. The ratings are supported by Kuwait’s rich resource endowment, and strong external & fiscal balance
sheet positions while underdeveloped private sector and strong dependence on oil revenues constrained the ratings.
Kuwait Central bank introduced new loan-to-deposit ratio (LTD) rules for
banks to boost lending. Other sources of funding such as bonds and loans will also be allowed while calculating LTD.
Kuwait National Petroleum is reportedly launching a tender to build the
long-delayed Al-Zour refinery with a capacity of 615,000 bpd. Meanwhile, Dow Chemical was awarded USD 2.2bn in damages due to a failed JV with KPIC in 2008.
Global Investment House won a legal battle over an aborted buy of a stake
in National Bank of Umm Al Qaiwain after the court ordered return of USD 250mn deposit plus USD 79mn in interest. The company’s 1Q12 loss
narrowed to USD 39.3mn from USD 79mn in 1Q11. Global was up 1% in
May.
Coast Investment & Development Co. is in advanced talks with banks to
reschedule USD 232mn of debt. The company shed 21% for the
month.
Qatar
Qatar has projected USD 49.2bn of spending in FY 2012/13, a rise of 28%
over the previous year. Based on an average oil price of USD 65/bl, revenue is seen increasing 27%. The budget projects a surplus of 8% of GDP.
Qatar Petrochemical Co. is reportedly re-examining the feasibility of a USD
6bn expansion of the Ras Laffan Petrochemical Complex.
Qatar Telecom’s USD 1.9bn rights issue has been fully subscribed and part of the proceeds will be used to refinance debt. QTel’s Tunisian unit has
been awarded licenses to for 3G, mobile and fixed-line networks. The
stock has shed 5% for the month.
Industries Qatar’s steel unit is seeking a 25% stake in a new Algerian venture and has earmarked QAR 1.5bn ($410mn) for investment. The
stock lost 4.7% for the month.
S&P affirmed its 'AA/A-1+' long
and short-term foreign and
local currency ratings on
Kuwait with Stable outlook
Volume was down 25% in the
GCC while Value Traded
dropped 38% to USD 49bn
R E S E A R C H June 2012
Kuwait Financial Centre “Markaz”
7
Liquidity, Risk & Valuation
Volume decreased 25% MoM in the GCC and Value Traded also decreased
38% to USD 49bn. This was on the back of 22% MoM drop in volumes and
16% decrease in Value Traded in April. Saudi Arabia, which accounted for
88% of GCC’s total value traded, witnessed a 40% MoM drop in value traded.
Risk in the GCC (as measured by the Markaz Volatility Index – MVX)
dropped 7% in May. Risk in Kuwait was up 42% for the month while MVX
Abu Dhabi shed 42%.
Valuations dropped in the GCC as markets suffered two consecutive
monthly losses. Most countries traded near the 8x-12x range.
Chart Pack – GCC
Figure: 12 – Saudi Arabia – PE Band Figure: 13 – Dubai – PE Band
Ezdan Real Est. Co. 15 20.0 3.9 -10 -27 155 144 291
Q-TEL 10 114.5 -6.1 21 -5 12 711 -12
Comr’cial Bk of Qatar 5 71.7 -0.4 -15 -9 9 471 6
Source: Excerpt from Markaz Daily Morning Brief
R E S E A R C H June 2012
R E S E A R C H June 2012
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