Markaz: GCC mar­kets fall de­spite ris­ing oil prices

Kuwait Times - - BUSINESS -

Kuwait Fi­nan­cial Cen­tre “Markaz” re­cently re­leased its Monthly Mar­ket Re­search re­port. In this re­port, Markaz ex­am­ines and an­a­lyzes the per­for­mance of eq­uity mar­kets in the MENA re­gion as well as the global eq­uity mar­kets for the month of Septem­ber.

The re­port stated that GCC bourses con­tin­ued to stum­ble in the month of Septem­ber, de­spite the oil price touch­ing USD 50 per bar­rel. Saudi’s TASI index shed 7.5%, fol­lowed by Qatar (5%) and Egypt (3.5%). Saudi Ara­bia’s stock mar­ket went deep into red over fears that the govern­ment could in­tro­duce more aus­ter­ity mea­sures to curb a big bud­get deficit caused by low oil prices. De­spite ad­di­tion of 22 stocks in the FTSE’s sec­ondary emerg­ing mar­ket index, across the board profit book­ing in Qatar and de­clin­ing Pro­ducer’s Price Index (PPI), led to the index fall­ing by 5% last month.

Spec­u­la­tion over pos­si­ble fur­ther de­val­u­a­tion of the Egyp­tian pound, due to ex­pected floata­tion of the cur­rency in the mar­ket, led to in­creased vo­latil­ity in the Egyp­tian mar­kets, as the coun­try’s main index de­clined 3.5% in Septem­ber. Morocco was the top per­form­ing mar­ket in Septem­ber, ris­ing by 1.8%, while Kuwait in­dices had a mixed month, with the price index fall­ing marginally by 0.4%, and the weighted index ris­ing by 1.3%. The S&P GCC also fol­lowed suit, de­clin­ing by close to 4% in the month of Septem­ber, and clos­ing at 87 points.

The re­port added that although the oil price rose by over 4%, on the back of the OPEC agree­ment to limit crude out­put, Saudi index fell con­sid­er­ably af­ter the Saudi govern­ment an­nounced that it was re­duc­ing salaries and al­lowances for public sec­tor em­ploy­ees. Many in­vestors be­lieve that ad­di­tional aus­ter­ity steps, such as new fees or taxes on the king­dom’s large work­force of for­eign­ers, could also be ap­proved soon. Mid­dle East fund man­agers have turned neg­a­tive towards Saudi Ara­bian eq­ui­ties for the next three months be­cause of the an­tic­i­pated aus­ter­ity poli­cies.

Blue Chips also had a neg­a­tive month, with Saudi Elec­tric Com­pany (SEC) and Ez­dan Hold­ings (Qatar) end­ing the month at the bot­tom of the pile, los­ing 12.5% and 10.6%, re­spec­tively. Zain (Kuwait) and Kuwait Food Co. wit­nessed a gain of 4.7% and 3.3%, re­spec­tively. SEC signed a USD 1.3bn Is­lamic loan in Septem­ber, af­ter hav­ing al­ready se­cured loans worth USD 3.8bn ear­lier this year. The com­pany claims that this new loan will be used towards sup­port­ing its projects’ cap­i­tal ex­pen­di­ture needs. The murabaha loan was sup­plied by three lo­cal banks: Banque Saudi Fransi, Na­tional Com­mer­cial Bank and Samba Fi­nan­cial Group. SEC also an­nounced plans in Au­gust to pri­va­tize its as­sets by the end of the year, as part of a drive to in­crease ef­fi­ciency in the king­dom’s util­i­ties. A few of the large cap stocks in the Qatar index were in­cluded in the FTSE’s Rus­sell emerg­ing mar­ket index in Au­gust. In­vestors cashed in on the gains post in­clu­sion as a few stocks’ val­ues re­treated, with Ez­dan Hold­ings fea­tur­ing among them. An­tic­i­pa­tion of Zain’s first uni­fied telecom­mu­ni­ca­tions li­cense to op­er­ate in Saudi Ara­bia, led to in­crease in share price in the month of Septem­ber.

Saudi cuts public sec­tor wages

Saudi Ara­bia cut min­is­ters’ salaries by 20%, and scaled back fi­nan­cial perks for public sec­tor em­ploy­ees in one of the most dras­tic mea­sures taken by the en­ergy-rich king­dom to save money, at a time when oil prices are sub-par. The mea­sures, ef­fec­tive from Oc­to­ber 2016, con­sti­tute the first pay cuts for govern­ment em­ploy­ees, who make up about two-thirds of work­ing Saudi pop­u­la­tion. Ac­cord­ing to the an­nounce­ment, hous­ing and car al­lowances for mem­bers of the ap­pointed Shoura Coun­cil will be cut by 15%. Over­time bonuses are to be curbed at be­tween 25 and 50% of ba­sic salaries, while an­nual leave may no longer ex­ceed 30 days. Oman has launched a com­bined USD 1.5bn tap of its June 2021 and June 2026 bonds. The five-year tranche will raise USD 500mn at 230bps over Trea­suries, while the 10year note will be for USD 1bn at plus 315bps. Oman is rated Baa1 by Moody’s and BBB- by S&P.

Oil mar­ket re­view

Brent crude rose USD 2.02 per bar­rel in the month of Septem­ber, af­ter the OPEC mem­bers struck a deal to limit crude out­put. This is the first agree­ment to cut pro­duc­tion, since 2008, and the deal will be fi­nal­ized at its pol­icy meet­ing in Novem­ber. The group reached an agree­ment to limit its pro­duc­tion within a range of 32.5m-33m mil­lion bar­rels per day (bpd) in talks held on the side­lines of the 26-28 Septem­ber In­ter­na­tional En­ergy Fo­rum in Al­giers. At the month end, Brent crude had risen 4.3% to close at USD 49 per bar­rel, which rep­re­sents a YTD in­crease of close of 32%.

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