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DOHA: Despite the GCC market seeing a sluggish foreign investment and a drop in IPOs in 2012, Qatar Exchange witnessed an inflow of $0.34bn in foreign investments, the highest in the year compared to other markets in the region. GCC markets saw a net foreign investment of $0.81bn during the year.
Abu Dhabi stock exchange and Dubai Financial Market had inflows of $0.11bn and $0.15bn respectively during the year. IPOs in GCC countries remained low in 2012; however, nearly 23 companies have announced the possibility of offering their shares to the public as market conditions improve, Investment Bank SICO’s GCC Stock Market Outlook noted.
Overall trading activity in the region picked up in the beginning of 2012; however the momentum could not be maintained and declined in the second half. The net value traded in the GCC capital market in 2012 was $576bn, 63 percent higher than 2011’s $354bn. Volume of shares traded also picked up, increasing 76 percent year-on-year to reach $233bn traded shares in 2012.
Following 2011’s trend, institutions remained as net buyers of GCC stocks. However, the trend for GCC is slightly skewed, due to the relative size of the Saudi market compared to the rest. Qatar exchange witnessed institutional investors being net seller in December 2012.
The report forecast robust economic outlook to support the region’s banking sector. “GCC banks’ balance sheet growth will continue to remain strong in 2013, driven by improving economic performance, benefitting from expansionary fiscal policies.
Governments’ diversification strategy to lower reliance on hydrocarbons will be positive for the private sector, and will lead to greater borrowing demand. GCC banks are well capitalized, and with ample liquidity in the system, they are capable of meeting increased lending needs”.
“Asset quality concern is likely to be the primary driver of near-term share price movement. SICO expects to see recovery in Saudi Arabia and UAE banks’ stock-price following improvement in asset quality, while expecting to see rising delinquencies for Qatari banks.
The report is cautious on Qatari banks, which are driven by a moderating economic growth of 4.8 percent versus 6.3 percent in 2012 expectations. Qatari banks are exposed to real estate risk.
An estimated 40 percent of Qatari banks’ private sector lending is towards real estate developers and contractors. A sector slowdown is likely, with a substantial increase in real estate developments without matching demand.
Qatari banks’ international expansion plans are expected to continue, giving them earnings diversification and growth opportunities. However, the share price impact will depend on each target’s valuation and attractiveness, and the successful management of the acquired entities.