Market Update. 14 May 2015 BANK MUSCAT ASSET MANAGEMENT

Transcription

1 Market Update 14 May 2015 BANK MUSCAT ASSET MANAGEMENT

2 GCC Equity Markets Most of the regional markets have witnessed negative performance so far this month, except Qatar, Oman, and Bahrain up 2.9%, 0.6%, and 0.1% respectively. Egypt and Dubai were the biggest losers as they were down 4.3% and 3.7%, respectively. The market decline in Egypt was due to MSCI s decision to remove Telecom Egypt from MSCI emerging markets index, putting the country s emerging market status at risk, whereas Dubai s market fell due to significant YoY fall in real estate transactions as compared to last year. Overall, Saudi remains the top-performing market this year, up 16.8% YTD followed by Dubai (up 7.9%), Abu Dhabi (up 2.2%) and Qatar (up 1.9%). Other regional markets are still flat-to-lower for the year. Volumes have started to pick up across the region but remain lower than last year. Saudi is the exception where ADTV of USD 2.4 bn is 3.5% higher than the average for % change % change Avg. Daily Turnover (USD 000) PE Dividend Yield MTD YTD YTD 2015 % change YoY 2015 LTM Egypt -4.3% -7.0% 51, % S Arabia -1.0% 16.8% 2,369, % Bahrain 0.1% -2.4% 1, % Kuwait -1.8% -3.3% 37, % Qatar 2.9% 1.9% 105, % Abu Dhabi -0.4% 2.2% 66, % Oman 0.6% 0.3% 12, % Dubai -3.7% 7.9% 171, % Source: Bloomberg *As of 14 May 2015 Economic & Corporate News UAE Central bank's banking statistics for March: loan growth improves, deposit growth falls: March data from UAE s central bank shows that net loans grew 8.2% YoY (+1.2% MoM) in March 2015 compared with 7.8% YoY last month. Deposits rose 8.8% YoY (1.3% MoM) vs. 10.1% YoY last month. The loan-todeposit ratio decreased to 97.3% in March from 97.5% in February. Non-resident deposits increased 27.9% YoY and 4.3% MoM. Personal loans grew 8.5% YoY and 1% MoM, while corporate loans increased 6.7% YoY, but were down 1% MoM. (Source: Central Bank of The U.A.E) Employment rate increased by 10% in 2014: The employment rate in the UAE increased by 10% in 2014 vs. 2013, according to the Ministry of Labour (MOL). For the first time in 44 years, the total number of workers reached 4,417,000 across different sectors. In 2014, the construction, business and industrial sectors accounted for ca. 70% of total employment in private sector establishments registered with the ministry, while the health sector was recorded as the fastest growing in terms of the employment rate. The health sector accounted for 25.4% of the total increase in the number of new employees. According to the MOL, the construction sector topped the list of the three major employers, with the number of workers in 2014 reaching ca. 1,500,000, accounting for ca. 34% of total employment. This was followed by the business sector (total of ca. 1,050,000 workers and accounting for 24% of total employment) and the industrial sector (ca. 500,000 workers and accounting for 12% of total employment). (Source: Zawya)

3 UAE March inflation at 4.3% YoY, highest since February 2009: The UAE National Bureau of Statistics released March consumer price data, which saw annual inflation at its highest level since February Housing and utility costs, which account for over 39% of consumer expenses, jumped 9.3% from a year earlier in March. The Emirate of Abu Dhabi hiked electricity and water tariffs from 1 January 2015, while the real estate prices have been rising significantly. Food and soft drink prices, which account for nearly 14% of the basket, edged up 1.1%. (Source: Zawya) Dubai real estate transactions fall by more than 50%: The total number of property transactions in Dubai halved last month compared with a year earlier as the market slowdown continued. According to the latest figures from the Dubai Land Department, the total number of transactions in Dubai plunged 51.8% YoY to 7,311 in April The total value of transactions last month was AED 35.3bn, down 37.1% YoY. (Source: The National, Abu Dhabi) Dubai's DP World eyes dollar bond sale, may raise up to $1bn: DP World plans to issue dollardenominated bonds. The firm could raise between USD 750mn and USD 1bn from the bond issue, depending on investor appetite and the interest rate the company would have to pay to borrow the money. (Source: Reuters) QATAR Qatar expected to witness highest rate of job creation in GCC in 2015: Among the GCC countries, Qatar is expected to witness the highest rate of job creation in 2015 despite the fall in oil prices, as nearly two-third of the employers surveyed in the country are planning to increase their workforce, according to a study conducted by Gulf Talent. With the uncertainty over the FIFA World Cup finally removed and major infrastructure projects getting the go-ahead, 66% of employers in Qatar reported plans to increase headcount. Qatar is expected to see the highest average pay increase at 8.3%, driven by rising cost of living and the growing need to attract talent for the completion of projects. George Ayache, General Manger of IFP Qatar said that Qatar, in the run-up to the 2022 FIFA World Cup and in line with the National Vision 2030 (QNV 2030) document, will be investing nearly USD 350bn. Qatar's economy is expected to record a 7.7% growth in real gross domestic product (GDP) this year, with the non-hydrocarbon sector accounting for 50% of total GDP. (Source: The Peninsula ) Qatar foreign trade surplus declines: Qatar's foreign merchandise trade surplus (the difference between total exports and imports) declined 53.7% in March 2015 vs. the same period last year. According to preliminary figures released by the Ministry of Development Planning and Statistics, the trade balance of goods showed a surplus of QAR 19.1bn, a fall of QAR 16.5bn vs. March The fall was due to lower exports of petroleum gases and other gaseous hydrocarbons. In March 2015, the total exports of goods (including exports of goods of domestic origin and re-exports) amounted to QAR 26.6bn, showing a decrease of 40.7% compared with March On the other hand, the imports of goods in March 2015 amounted to QAR 10.1bn, showing an increase of 9.9% over March (Source: Zawya) OMAN GDP rises 4.6% in 2014; decline forecast on account of a fall in non-oil sector growth: Oman's GDP was up 4.6% in 2014 to OMR 31.45bn. The National Centre for Statistics and Information (NCSI) said petroleum production fell 2.4% in 2014, recording OMR 14.84bn vs. OMR 15.2bn in Crude oil contributed OMR 13.78bn, registering a 1.9% decline vs. OMR 14.04bn in Natural gas, on the other hand, posted a decline of 8.5% in 2014 to OMR 1.06bn vs. OMR 1.15bn in Meanwhile, the total value of non-petroleum activities registered 10.1% growth, reaching OMR 18.92bn vs. OMR 17.19bn in 2013.

4 However, the International Monetary Fund (IMF) projected Oman's non-hydrocarbon growth rate to drop to 5% in from 6.5% in 2014, consistent with the government's spending plans, and thereafter to 4.5% in , with risks tilted to the downside. It estimated the sultanate's real GDP growth at 4.6% for 2015, which would further decline to 3.1% in It urged Oman to take fiscal adjustment measures, such as containing expenditure growth and increasing non-oil revenue to improve its economic outlook. (Source: Times of Oman, Muscat Daily) Oman February bank lending growth the fastest since January 2013: Oman's bank lending growth accelerated to 11.4% YoY in February, the fastest since January 2013, from 11.1% in January 2015, according to central bank data. (Source: Reuters) Oman's inflation declines 0.14% in April: Oman's average consumer price inflation averaged 0.41% for the four-month period ended April, with 4 of the 12 main sets constituting the consumer basket recording negative rates. The rate in April dropped 0.14% from a year earlier, and was down 0.24% from the previous month. The decline is mainly attributed to a fall in prices of food items and non-alcoholic beverages, which fell 1.21% YoY, and also a 1.29% YoY drop in clothing and footwear prices. (Source: Muscat Daily) National Bank of Oman raises Euro-medium Term Note (EMTN) programme size to USD 1.5bn: The board approved an increase in the EMTN programme size from USD 600mn to USD 1.5bn. The proposed EMTN programme will enable the bank to issue Basel 3 compliant tier-2 instruments, the terms of which will be subject to the approval of the central bank. The board also approved an issuance of USD 300mn additional tier-1 capital. (Source: Bloomberg) SAUDI ARABIA KSA's non-oil sector set for robust growth: The strong performance of the Saudi economy is likely to continue in 2015 despite low oil prices, as the non-oil private sector should record robust growth amid the diversification of the national economy and the Saudi stock market opening up to foreign investors. According to the Saudi Economy 2015 report by Jadwa Investment, the economy will do well, with annual growth in the oil sector remaining positive in 2015, as average oil output is expected to increase on higher domestic consumption, and the non-oil private sector continuing to record robust growth. The report states that construction and utilities are likely to be the fastest growing sectors for private stakeholders. (Source: Zawya) MOL plans jobs for 8m citizens: The MOL plans to create jobs for 8m citizens over the next 20 years with a specific focus on employing women and young people under the age of 22. Units would be set up at labour offices across the country to provide guidance for women job seekers, which would include remote, part-time and full-time work. Units would also be set up for population under the age of 22 to provide guidance and facilitate training. Companies would be urged to follow the training programmes that Saudi Aramco has in place. (Source: Arab News) Saudi March inflation drops to 2%: Saudi Arabia's Central Department of Statistics released March consumer price data, which saw inflation at its lowest level since September 2012, when the current data series began. March inflation stood at 2%, down from 2.1% in February and 2.6% in January. A strengthening US dollar also played a part in adding to downward pressure on import costs, and consequently, inflation. The liquidity injection, as a result of the January royal decrees, presents an upside risk to inflation for the remainder of the year. Jadwa Investment expects inflation to average 2.5% this year. Housing inflation should act as the major source for inflationary pressure during 2015, as rents rise due to the continued shortage in housing units. (Source: Zawya)

5 Saudi s Riyad Bank plans SAR 4bn bond issue to boost its capital base: Riyad Bank, Saudi Arabia's fourth-largest lender by assets, plans to issue SAR 4bn (USD 1.07bn) of bonds to boost its capital base. The privately placed bonds will have a tenor of 10 years and will be redeemable after five years. The issue is aviating approval by regulatory authorities. After a period of strong lending growth, banks in Saudi Arabia have sought to replenish their capital reserves in the last couple of years through issuance of such capitalboosting bonds. (Source: Reuters) KUWAIT Kuwait finance ministry is studying proposals to introduce same tax for local and foreign companies: Kuwait is studying proposals to introduce same tax rates for local and foreign companies, according to Finance Minister Anas al-saleh. Currently, Kuwaiti companies generally do not pay taxes on income, although foreign firms pay a levy on commercial activities in the country, with the rate on the highest income bracket reaching 55%, according to a government website. Introducing a new corporate tax would be a major, politically sensitive policy shift for Kuwait. Pressure on its state finances has increased in recent months because of the plunge in oil prices, and officials have planned to diversify revenue sources beyond oil. (Source: Gulf Business) Kuwait Finance House weighs sale of Malaysian operations: Kuwait Finance House KSC, the first foreign Islamic bank to operate in Malaysia, is considering a sale of its operations in the Southeast Asian nation. The Malaysian unit had total assets of MYR 10.5bn and book value of MYR 1.7bn at end-december Its operations include retail and commercial banking, home financing, corporate advisory, asset management and an arm operating in the offshore financial centre of Labuan. This possible disposal comes after Kuwait Finance House said in March 2015 that it will focus on expansion in the Middle East and North Africa. (Source: Bloomberg) EGYPT Egypt s economic policies starting to pay off: Egypt's economic policy reforms are starting to pay off and the economy is strengthening despite the country s difficult situation, according to the IMF. According to the IMF, Egypt's economy, which grew by 2.2% last year, is projected to grow by 4.0% in FY15 (up from October's projection of 3.5%). Government efforts to cut the budget deficit and spur economic growth are now bearing fruit, although more needs to be done. According to a poll by Reuters, Egypt's economic growth is set to accelerate in the next two years, reaching 4.5% in FY16 and 5.5% by FY17. Analysts polled also raised inflation forecasts for this financial year to 10.8% from 10.4% in the previous poll. However, it is expected to slow to 10.0% in FY16. The EGP is forecasted to weaken slightly more this fiscal year to 7.65 EGP/USD from 7.53 currently, stabilising at ca. 8 EGP/USD the following year, as per the poll. Further, Egypt's budget deficit in nine months to March rose to 9.4% of GDP compared with 7.3% in the corresponding period last year, according to the finance ministry. This was mainly due to exceptional and mandatory government expenditures, which exceeded the impact of increased revenue proceeds. (Source: Zawya) Egypt falls as Telecom Egypt dropped from MSCI index: Telecom Egypt tumbled after MSCI excluded the stock from its emerging markets index, leaving only three Egyptian stocks in it - Commercial International Bank (CIB), Talaat Moustafa Group and Global Telecom - which is the minimum required for a country to stay in the benchmark. According to EFG Hermes, the fall to three stocks indirectly puts Egypt's emerging market status at risk, and investor interest could fall leading to lower turnover and market cap. (Source: Reuters)

6 Market Outlook In the near term, the GCC region s performance would be driven mainly by oil price movement and the ongoing quarterly results. Saudi, UAE and Egypt remain our most preferred markets. Robust growth in non-oil sector and opening up of markets to foreign investors will continue to provide support to the Saudi market, while the UAE remains least affected by lower oil prices due to strong growth in non-hydrocarbon sectors. Egypt s stabilisation efforts to reduce budget deficit and promote economic growth are starting to pay-off. The economy is forecasted to growth at 4.0% for FY15 (up from October's projection of 3.5%) compared to 2.2% last year. Its growth is set to accelerate in the next two years, reaching 4.5% in FY16 and 5.5% by FY17. We believe the recent decline in Egypt stock market should be short lived. In the long run, the region s performance would be driven by the accelerating growth in the non-oil sector and high government spending on infrastructure, which would be partially offset by the drop in crude prices. The lower dependence on the hydrocarbon sector (33% in 2014 from 41% in 2000) is a result of continuous diversification policies adopted by the GCC nations. In addition, their excessive sovereign wealth funds and external surpluses can help them deal with the low oil prices for a significant period of time. Another growth factor is increasing government spending on capital assets, as announced by many GCC nations. The retail sector would be the leading driver of this growth owing to the strong economic growth in the region, growing purchasing power, increasing population due to the influx of a large number of expatriates, changing consumption patterns and increasing penetration of multinational retail players. However, if oil prices remain low for a longer period of time, it would affect business confidence, as investors would become reluctant to spend money.