Saudi Ara­bia’s MSCI qual­i­fi­ca­tion boosts mar­ket

KAMCO MONTHLY MAR­KET RE­PORT

Kuwait Times - - BUSINESS -

Af­ter re­port­ing muted per­for­mance for the pre­vi­ous two months, TASI bounced 8.1% dur­ing June-17 record­ing the best monthly per­for­mance in the GCC af­ter global in­dex com­piler MSCI said it would con­sider Saudi Ara­bia for an up­grade to emerg­ing mar­ket sta­tus. In ad­di­tion, the el­e­va­tion of Deputy Crown Prince, Mo­hammed bin Sal­man, to the post of Crown Prince also pro­vided cheers to the mar­ket that surged more than 3% af­ter the news. The new crown prince is said to be the ar­chi­tect of the on­go­ing Saudi re­forms and his el­e­va­tion pro­vides a big boost to the re­form process and en­cour­age­ment for the speed of di­ver­si­fi­ca­tion ef­forts in the King­dom.

On the other hand, softer oil prices that was down more than 8% dur­ing the month, added bear­ish pres­sure on the markets al­though other pos­i­tive fac­tors muted the im­pact. Also, the on­go­ing diplo­matic is­sues con­cern­ing Qatar and other GCC mem­bers af­fected the per­for­mance of the Qatari ex­change that de­clined by 8.8% dur­ing the month, mak­ing it the worst per­form­ing mar­ket in the re­gion. On the eco­nomic front, the sec­ond rate hike for 2017 an­nounced by the US Fed dur­ing mid-June was fol­lowed by an equiv­a­lent repo rate hike in UAE, re­verse repo rate hike in Saudi Ara­bia and pol­icy in­ter­est rate hike in Bahrain. Kuwait skipped a rate hike for the first time since 2015 cit­ing mar­ginal eco­nomic growth in the coun­try due to lower oil prices.

Glob­ally, markets re­mained pos­i­tive with a gain of al­most 1% for MSCI World and for the US eq­uity mar­ket. The MSCI GCC in­dex also gained 4.9% dur­ing the month fol­low­ing solid gains in Saudi Ara­bia and mar­ginal gains in the UAE. Mar­ket ac­tiv­ity de­clined in most of the GCC markets, with over­all value traded in the re­gion re­ced­ing 14% to USD 20.0 Bn. Higher trad­ing in Qatar due to sell­ing pres­sure and mar­ginal gains in Abu Dhabi, failed to off­set the de­cline in trad­ing in the GCC.

Saudi Ara­bia Tadawul

Ara­bia recorded best monthly per­for­mance in seven months af­ter a wave of pos­i­tive de­vel­op­ments dur­ing June17 pro­vided a boost to in­vestor sen­ti­ments in an oth­er­wise muted month of Ra­madan. The bench­mark TASI In­dex surged 8.1% dur­ing the month to reach a 21- month high level of 7,425.72 points. The news that MSCI would con­sider Saudi Ara­bia for an up­grade to emerg­ing mar­ket pushed TASI by 5.5% on the day of the an­nounce­ment, the largest sin­gle-day gain in the in­dex in al­most a year. In ad­di­tion, the MSCI an­nounce­ment was pre­ceded by news of el­e­va­tion of Deputy Crown Prince, Mo­hammed bin Sal­man, to the post of Crown Prince that also pro­vided cheers to the mar­ket push­ing in­dices by more than 3%. To­tal gains post the afore­men­tioned an­nounce­ments dur­ing the sec­ond half of the month was close to 9%, push­ing YTD-17 gains to 3.0% for TASI.

The new crown prince is said to be the ar­chi­tect of the on­go­ing Saudi re­forms and his el­e­va­tion pro­vides a big boost to the re­form process and en­cour­age­ment for the speed of di­ver­si­fi­ca­tion ef­forts in the King­dom. The se­lec­tion of the new crown prince also ends any doubts over the con­tin­u­a­tion of the new poli­cies and the re­form process in the King­dom, specif­i­cally the Vi­sion 2030 pro­gram, and pro­vides long term vis­i­bil­ity in in­vest­ment in key eco­nomic ar­eas, es­pe­cially the non-oil sec­tors. More­over, banks are said to be the big­gest ben­e­fi­ciary of the re­form process in the King­dom as the re­form process would re­quire fund­ing from banks. This re­sulted in the sec­ond big­gest monthly gain of 12.9% for the Bank­ing in­dex as all the listed banks in the King­dom recorded gains dur­ing the month. More­over, amongst the banks, NCB is ex­pected to get a big­ger share of fund­ing for non-oil sec­tor, and as a re­sult, shares of the bank wit­nessed the big­gest monthly gain of 27.64% push­ing its share price to SAR 53.11, the high­est clos­ing level in 18-months.

Fur­ther­more, ac­cord­ing to the MSCI an­nounce­ment, 32 large-cap Saudi-listed stocks could po­ten­tially gain the emerg­ing mar­ket sta­tus post the King­dom’s in­clu­sion which is said to hap­pen ear­li­est by 2019 if all the re­quire­ments are met. This would re­sult in a weight of 2.4% for Saudi Ara­bia in the in­dex. How­ever, this ex­cludes the planned list­ing of Aramco that could dou­ble the King­dom’s weight in the in­dex. In ad­di­tion, the ex­pected MSCI up­grade along with a suc­cess­ful up­grade from FTSE in Septem­ber-17 to sec­ondary emerg­ing mar­ket sta­tus, could at­tract pas­sive funds in ex­cess of USD 50 Bn in the King­dom.

Trad­ing ac­tiv­ity on the ex­change took a hit dur­ing June-17 due to the lesser num­ber of trad­ing days (16 days in June-17 as com­pared to 23 days in May-17) as well as due to the month of Ra­madan. To­tal vol­ume traded de­clined 30% to reach 2.9 Bn shares as com­pared to 4.1 Bn shares dur­ing the pre­vi­ous month. To­tal value traded also de­clined but a much lower pace of 15% to reach SAR 54.7 Bn as com­pared to SAR 64.6 Bn dur­ing May-17. How­ever, av­er­age daily value traded surged 22% to SAR 3.4 Bn dur­ing the month due to the hol­i­days. SABIC topped the monthly value chart with SAR 8.1 Bn worth of trades dur­ing the month fol­lowed by Alinma Bank and Dar al Arkan Real Estate with SAR 7.9 Bn and SAR 7.5 Bn worth of trades in these stocks, re­spec­tively. Savola was the sec­ond-big­gest monthly gainer dur­ing the month, af­ter NCB, with a surge of 22.6% fol­lowed by SABB and Al Marai with monthly gains of 19.8% and 18.6%, re­spec­tively. The Food and Bev­er­age in­dex topped monthly in­dex per­for­mance with a gain of 16.2% dur­ing the month.

Abu Dhabi Stock Ex­change re­port

The ADX in­dex ended flat dur­ing June-17 to close at 4,425.4 points af­ter reach­ing a monthly peak of 4,537.6 points (+2.5% MTD) by mid month. The in­dex di­rec­tion was mostly down­wards dur­ing the sec­ond half of the month pri­mar­ily due to weak trends in the bank­ing stocks. This was also re­flected in the 1.3% de­cline in the bank­ing in­dex with merely two banks record­ing gain in share priced dur­ing June- 17. Within the sec­tor, Com­mer­cial Bank In­ter­na­tional saw the steep­est de­cline of 23.7%, also top­ping the monthly de­clin­ers chart for the ex­change, due to con­cerns re­lated to its 40% ma­jor­ity share­holder QNB. Gain­ers in the sec­tor in­cluded Na­tional Bank of Fu­jairah and Na­tional Bank of Umm Al-Qai­wain with monthly gains of 10.0% and 6.9%, re­spec­tively.

Sec­toral per­for­mance chart also high­lighted 37.1% gains for the En­ergy In­dex pri­mar­ily due to gain in shares of Dana Gas fol­lowed by marginally pos­i­tive re­turns for Real Estate, Tele­com and In­sur­ance in­dices. On the de­clin­ers side, the Ser­vices in­dex recorded the steep­est fall of 3.4% fol­lowed by Con­sumer Sta­ples and Banks record­ing de­clines of 1.8% and 1.3%, re­spec­tively.

The monthly gain­ers chart was topped by Dana Gas with its shares up 56.1% fol­lowed by 17.6% gains in shares of Abu Dhabi Ship Build­ing and 13.8% gain in shares of Na­tional Taka­ful Co. The gain in shares of Dana Gas came af­ter the com­pany de­clared its Sukuk payable in Oc­to­ber-17 as un­law­ful amid ne­go­ti­a­tions with its sukuk hold­ers and pro­posed to re­place it with another Shariah com­pli­ant Sukuk with a tenor of 4 years with a sig­nif­i­cantly re­duced profit rate. The com­pany’s USD 690 Mn sukuk was due in Oc­to­ber-17 but its re­pay­ment was a con­cern as the com­pany had in­suf­fi­cient cash on its bal­ance sheet.

On the de­clin­ers side, Com­mer­cial Bank In­ter­na­tional topped the chart fol­lowed by Oman & Emi­rates In­vest­ment Hold­ing and Eshraq Prop­er­ties, with de­clines of 18.3% and 18.1%, re­spec­tively. Eshraq Prop­er­ties an­nounced dur­ing the month that it has en­tered into an agree­ment to di­vest its eq­uity of 4.55% in Ward Hold­ings Ltd for AED 68 Mn. Over­all, the mar­ket breadth dur­ing the month was skewed to­wards de­clin­ers that in­cluded 28 stocks as com­pared to 20 gain­ers.

Trad­ing ac­tiv­ity on the ex­change re­mained re­silient dur­ing June-17 de­spite the hol­i­days. To­tal vol­ume of shares traded dur­ing the month more than dou­bled to 3 Bn shares as com­pared to 1.44 Bn shares dur­ing the pre­vi­ous month. How­ever, the in­crease was solely led by 1.75 Bn shares of Dana Gas traded dur­ing the month. More­over, due to the low share price of Dana Gas, the surge in value traded dur­ing the month was min­i­mal at 3.5% to reach AED 3.7 Bn as com­pared to AED 3.6 Bn dur­ing May-17. The growth in the av­er­age daily vol­ume and value traded dur­ing the month was strong at 166% and 32.2%, re­spec­tively, re­flect­ing the lesser num­ber of trad­ing days. Dana Gas topped both the vol­ume and value traded charts with a to­tal value of AED 1.11 Bn. Abu Dhabi Com­mer­cial Bank and First Abu Dhabi Bank fol­lowed in terms of monthly value traded with shares worth AED 457.9 Mn chang­ing hands each for the two banks dur­ing the month. In terms of monthly vol­umes, Eshraq Prop­er­ties was the sec­ond largest traded stock with 340.6 Mn shares chang­ing hands dur­ing the month fol­lowed by RAK Prop­er­ties (233 Mn shares) and Al Dar Prop­er­ties (187.6 Mn shares).

Dubai Fi­nan­cial Mar­ket

Dubai was the only other mar­ket apart from Saudi Ara­bia that recorded pos­i­tive per­for­mance dur­ing June-17. The bench­mark DFM Gen­eral In­dex surged 1.6% dur­ing the month af­ter four con­sec­u­tive months of de­clined. As a re­sult of the gain, the YTD-17 re­turn for the in­dex was recorded at 3.9%. The pos­i­tive per­for­mance of the mar­ket was pri­mar­ily led by pos­i­tive per­for­mance of the real estate stocks that more than off­set de­cline in other large cap stocks dur­ing the month.

The sec­toral per­for­mance chart also re­flected strong de­mand for real estate stocks with the re­lated Real Estate & Con­struc­tion In­dex surg­ing the most dur­ing the month by 5.4% fol­lowed by Ser­vices and In­dus­trial in­dices with re­turns of 2.9% and 1.6%. Within the real estate sec­tor, large-cap stock Emaar Prop­er­ties recorded the big­gest gain of 9.4% dur­ing the month fol­low­ing the com­pany’s an­nounce­ment that it plans to list its UAE Real Estate De­vel­op­ment business.

The com­pany plans to of­fer up to 30% in the said business and would use the pro­ceeds to give div­i­dends to Emaar’s share­hold­ers. To­wards the end of the month, the com­pany also an­nounced the ap­point­ment of Amit Jain as its CEO, who served as act­ing CEO be­fore the el­e­va­tion. Other gain­ers in the in­dex in­cluded shares of Drake and Scull In­ter­na­tional (DSI) with gains of 7.8% fol­lowed by Da­mac Prop­er­ties with a monthly gain of 5.6%. Shares of the lat­ter surged af­ter the prop­erty de­vel­oper signed an agree­ment to par­tic­i­pate in a USD 1 Bn project to de­velop a wa­ter­front in Oman. Gain in shares of DSI came af­ter the com­pany an­nounced that it is in talks with banks to di­vest some of its as­sets, in­clud­ing some of the its land banks.

De­clin­ers in the real estate sec­tor in­cluded Arabtec and Union Prop­er­ties record­ing de­clines of 7.6% and 1.2%, re­spec­tively. Shares of Arabtec de­clined af­ter the com­pany’s cap­i­tal re­duc­tion be­came ef­fec­tive which comes as a part of the com­pany’s re­cap­i­tal­iza­tion pro­gramme aimed at im­prov­ing fi­nan­cial per­for­mance and re­duce losses.

Sec­tors that de­clined dur­ing the month in­cluded Banks, Fi­nan­cial & In­vest­ment Ser­vices and In­sur­ance each record­ing a de­cline of 2.1%, fol­lowed by Con­sumer Sta­ples and Tele­com with de­clines of 1.4% and 0.4%, re­spec­tively. Within the bank­ing sec­tor, which is un­der­go­ing a mar­gin squeeze de­spite higher lend­ing, Emi­rates NBD was the only bank that recorded pos­i­tive per­for­mance dur­ing the month with its shares marginally up by 0.5%. On the other hand, prom­i­nent de­clin­ers in­cluded Mashreq Bank (-9.2%), Com­mer­cial Bank of Dubai (-5.6%), Emi­rates Is­lamic Bank (-4.6%) and Dubai Is­lamic Bank (1.9%). In the Fi­nan­cial & In­vest­ment Ser­vices sec­tor, the 27.0% de­cline in shares of Shuaa Cap­i­tal more than off­set the gains in other stocks in the sec­tor. Shuaa Cap­i­tal, which was in talks with GFH to sell a ma­jor­ity stake in the com­pany, de­clined af­ter GFH said it was post­pon­ing dis­cus­sions to ac­quire the Shuaa stake.

The monthly gain­ers chart was topped by Al Mad­ina for Fi­nance and In­vest­ment that recorded a gain of 23.7% fol­lowed by Tabreed which surged 11.7% af­ter a French com­pany Engie bought a Mubadala’s 40% stake in the com­pany. The monthly trad­ing ac­tiv­ity wit­nessed a rel­a­tively smaller de­cline as com­pared to other GCC markets. Monthly vol­ume de­clined by 1.7% to reach 6 Bn shares, while monthly value traded de­clined by 8.0% to reach AED 7.1 Bn.

Qatar ex­change wit­nessed the fourth con­sec­u­tive month of de­cline in June-17 as bear­ish pres­sure ow­ing to Ra­madan was ex­ac­er­bated by Qatar’s on­go­ing diplo­matic is­sues with the other GCC coun­tries that pushed the QE20 in­dex to a 17-month low level of 8,777.73 points. Nev­er­the­less, the in­dex re­cov­ered 2.9% on the last day of trad­ing and re­gained the 9,000 mark to close at 9,030.44 points record­ing a monthly de­cline of 8.8%. The de­cline dur­ing the month was broad-based as seen from the 6.8% de­cline for the Qatar All Share In­dex which closed the month at 2,581.2 points. The de­cline dur­ing June-17 has also pushed down QE in­dices to the low­est in the GCC in terms of YTD-17 re­turns that stood at 13.5% for the QE 20 In­dex and 10.0% for the QE All Share In­dex.

In terms of sec­tor per­for­mance, only the Real Estate sec­tor wit­nessed pos­i­tive re­turns dur­ing the month record­ing a gain of 5.7% solely led by 15.2% gain in shares of Ez­dan Hold­ing, the big­gest stock in the sec­tor, while the re­main­ing three real estate stocks de­clined dur­ing the month. Shares of the prop­erty firm has been see­ing a rout af­ter the com­pany’s man­age­ment an­nounced its de­ci­sion to delist the com­pany. How­ever, af­ter de­clin­ing as much as QAR 10.96 per share in early June-17, the shares re­bounded af­ter the com­pany’s board said that the com­pany will pre­pare a state­ment of the fair value per share to be pre­sented to share­hold­ers at a sub­se­quent meet­ing. Post the an­nounce­ment, there has been spec­u­la­tions that the said fair value could end be­ing higher than the price at which the com­pany is cur­rently trad­ing.

On the other hand, the Tele­com in­dex recorded the steep­est de­cline of 10.4% fol­lowed by Banks & Fi­nan­cial Ser­vices at 10.3% and the In­dus­tri­als in­dex at -8.7%. Both Tele­com stocks de­clined dur­ing the month with Oore­doo fall­ing 11.9% while shares of Voda­fone Qatar de­clined by 2.2%. The de­cline in the Banks & Fi­nan­cial Ser­vices sec­tor came on the back of a sec­tor wide weak­ness led by con­cerns re­lat­ing to the diplo­matic sit­u­a­tion. Ahli Bank was the only stock that recorded pos­i­tive gains of 7.8%, while Dlala Bro­ker­age and Is­lamic Hold­ing Group saw dou­ble digit de­clines of 24.5% and 21.1%, re­spec­tively. Among the ma­jor banks, shares of QNB de­clined the most fall­ing by 13.6% fol­lowed by -9.5% for Qatar Is­lamic Bank and -8.85% for Qatar In­ter­na­tional Is­lamic Bank.

The bank­ing sys­tem for the coun­try is sound with low NPL to to­tal loans ra­tio and sound cap­i­tal ad­e­quacy ra­tion, how­ever, risk liq­uid­ity pres­sures could in­crease if the govern­ment de­cides to use de­posits with do­mes­tic banks for fund­ing its deficits. In a re­lated de­vel­op­ment, Qatar’s 5-year CDS rose sharply dur­ing June-17 ris­ing to a 16-month high level, in ad­di­tion to one of the sharpest de­cline in the ex­change rate of Qatari Riyal. The pres­sure on the coun­try’s bank­ing sec­tor comes as smaller banks Mas­raf Al Rayan, Barwa Bank and In­ter­na­tional Bank of Qatar are push­ing ahead to cre­ate the coun­try’s sec­ond-largest through a three­way merger.

Bahrain Bourse

The Bahrain All Share In­dex de­clined for the third con­sec­u­tive month, al­beit marginally by 0.7% dur­ing June-17 to close at 1,310.0 points. The in­dex stayed afloat for most part of the month but sank es­pe­cially dur­ing the last few trad­ing ses­sions by al­most 1.1% to close the month in the red. Nev­er­the­less, gains record­ing dur­ing the first quar­ter of the year has en­abled the in­dex to stay in the green zone in terms of YTD-17 re­turns that stood at 7.3%, the sec­ond high­est in the GCC af­ter Kuwait.

In terms of sec­tor per­for­mance, the In­dus­trial in­dex topped the chart record­ing a gain of 7.8% solely led by gain in shares of Alu­minum Bahrain. The In­sur­ance In­dex surged 1.6% on the back of gain in shares of Bahrain Na­tional Hold­ing, the only stock that traded in the sec­tor. The Com­mer­cial Banks in­dex re­mained al­most flat with mar­ginal gains of 0.2% af­ter de­cline in shares of NBB (-2.2%), Al Khaleeji Bank (-9.9%) and Al Salam Bank (-1%) were com­pletely off­set by gain recorded by AUB (+1.5%) and BBK (+1%). In a re­lated news, Gulf In­ter­na­tional Bank, which is owned by GCC gov­ern­ments and pro­vides fi­nan­cial prod­ucts and in­vest­ment ser­vices, said it has been granted a con­ven­tional re­tail bank­ing li­cense in Bahrain by the King­dom’s cen­tral bank. It would op­er­ate a dig­i­tal bank­ing plat­form in Bahrain from 2018 un­der the Meem brand. On the de­clin­ers side, the Ser­vices in­dex sank 4.8% dur­ing the month led by de­cline in shares of BMMI (- 2.5%) and Batelco (-10.4%)par­tially off­set by 1.7% gain in shares of Seef Prop­er­ties.

Trad­ing ac­tiv­ity dur­ing June-17 re­mained thin, in line with the rest of the GCC markets. To­tal vol­ume of shares de­clined by more than a third to reach an 8-month low level of 39 mn shares as com­pared to 61 Mn shares dur­ing the pre­vi­ous month. Value traded also de­clined at al­most the same pace to reach BHD 9.0 Mn as com­pared to BHD 14 Mn dur­ing May-17, once again the low­est since Oc­to­ber-16. Monthly av­er­age vol­ume and value also de­clined de­spite the hol­i­days to reach 2.2 Mn shares and BHD 0.5 Mn, re­spec­tively.

The monthly gain­ers chart was topped by Inovest which recorded a gain of 18.2% al­though trades in the stock was min­i­mal at BHD 35 thou­sand. Alu­minum Bahrain recorded the sec­ond-largest gain for the month at 8.1% fol­lowed by Bahrain Na­tional Hold­ing Co. and Ith­maar Bank with gains of 4.9% and 3.6%, re­spec­tively. On the de­clin­ers side, Batelco topped the list with a de­cline of 10.4% fol­lowed by Al Khaleeji Com­mer­cial Bank and GFH with monthly de­clines of 9.9% and 9.2%, re­spec­tively. The lat­ter de­clined af­ter it with­drew from talks to buy Dubai’s Shuaa Cap­i­tal af­ter both the par­ties failed to reach com­mon ac­qui­si­tion terms. GFH said that it would con­tinue to seek strate­gic op­por­tu­ni­ties. The monthly mar­ket breadth was skewed to­wards de­clin­ers that in­cluded 10 com­pa­nies as against 8 gain­ers. Shares of 22 com­pa­nies re­mained un­changed.

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