DOHA: The Doha declaration to freeze oil production at the January level boosted the GCC’s equity market sentiment in February. After January’s shaky start, the market closed broadly higher in February.
In terms of valuation, the GCC markets are still attractive vis-à-vis the peers. The one year forward PE ratio of GCC markets stands at 8-10x, lower than that of the emerging markets, Global Research’s monthly ‘GCC market performance’ report noted.
Qatar was the biggest second key gainer in the region in February, after Dubai. The market capitalisation of GCC bourses was up 3.4 percent month-on-month to $801bn in February from $775bn.
The Saudi bourse’s market capitalisation was up 2.2 percent MoM, making it the largest contributor to market capitalisation ($374bn or 46.7 percent), followed by the Qatari index ($121bn or 15.2 percent), and the Abu Dhabi and Dubai markets ($190bn or 23.7 percent). The Kuwaiti, Omani, and Bahraini exchanges contributed $116bn or 14.5 percent to the market capitalisation of the region.
Trading improved in February. Volume traded rose 33 percent MoM to 21bn shares, while value traded grew 6.6 percent to $38bn.
GCC nations are expecting a deficit in their 2016 budget. Saudi Arabia and Qatar have already projected deficits of $87bn and $12bn, respectively, in their 2016 budgets. Furthermore, Kuwait is estimating a deficit of $42.6bn in its 2016–17 budget. “We believe other GCC peers would follow suit. In the UAE, Dubai announced a zero-deficit budget this year.
However, the other emirates may record budget shortfalls. To reduce deficits, GCC nations plan to raise taxes, sell bonds, and eliminate subsidies. Furthermore, their focus would remain on strengthening non-oil revenue by developing small and midsized enterprises. GCC governments have already begun to develop their non-oil sectors to strengthen economies. Hence, we believe, in the long run, GCC markets would be an attractive investment avenue”, the report said.
QE rose 4.3 percent MoM in February, led by an improvement in crude oil prices from the 12-year low reached in January. Crude prices gained in February amid news that Qatar, Saudi Arabia, Russia, and Venezuela would lead an effort to freeze output at January’s level. Moreover, Iraq expressed its willingness to freeze production at January’s level if an agreement could be reached between OPEC and non-OPEC countries.
Rating agency Standard & Poor’s affirmed Qatar’s long-and short-term foreign and local currency sovereign credit ratings at ‘AA’ and ‘A-1+’, respectively, with stable outlook. The agency anticipates the country’s fiscal and external positions to shift to deficit from 2016. Nonetheless, Qatar has a large net asset position, which would enable the country to tackle the current low hydrocarbon price environment. In addition, the ratings are supported by the fact that Qatar’s economy would remain resilient due to strong macroeconomic fundamentals. However, the country’s trade surplus dropped 58 percent YoY in January 2016 to Q7.25bn, as imports increased and exports declined significantly due to lower exports of petroleum gases and crude oil.
Trading on QE increased in February. The value of shares traded rose 19.1 percent to $1.4bn, compared to the previous month, while the volume of shares traded gained 18.2 percent to 138.4million shares.
The Peninsula
