GCC trading activity perks up in July
KAMCO GCC Markets Monthly Report
Trading activity in the region improved in July 2017 after receding by 14 percent m-o-m in June-17 due to the lower activity from traders during Ramadan, and lower number of working days due to holidays. Overall value traded in the GCC was higher by 8.5 percent m-o-m and reached $ 21.7 billion. However the MSCI GCC index which gained 4.9 percent in Jun-17 dropped the following month, albeit marginally, driven by the TASI which went down by 4.5 percent m-o-m in July-17. All other major GCC stock markets barring MSM closed the month in the green with DFM leading the way with a 7.1 percent m-o-m return, followed by Qatar (+4.2 percent) and Kuwait (Kuwait Weighted Index: +3.5 percent).
Q2-17 earnings season across the GCC is underway, and the TASI index was also affected in July-17 by corporate results, as some large caps saw declines in profitability y-o-y. SABIC saw its Q2-17 net profit drop by 25 percent, due to higher cost of sales and lower sales volumes. Saudi Arabia also saw their GDP growth reduced by the IMF for 2017 and 2018, which in our view would have affected sentiment towards future corporate profitability as well. Nevertheless, Saudi Arabia’s SAR 17 billion sukuk was oversubscribed by three times, which underpins the strength of the economy and its capital markets. In Kuwait, H1-17 results of the banking sector showed that profitability of banks have grown by over 8 percent y-o-y.
Oil prices pulled back 8 percent-10 percent during the month of July to hover around $ 50/bbl after visiting intra month lows of midforties. Sovereign credit ratings action, oil markets and monetary policy action from Central banks would also have a signaling impact on corporate profitability and in turn stock prices in the following quarters. Moreover, a recovery from the TASI and QE 20 indices in H2-17 would be crucial in driving GCC markets and market activity higher in terms of volumes going forward.
Stocks reversed trends from June-17 in Kuwait and went up during July-17 as reflected in the increases recorded by all the threebenchmark indices. Large-caps did better than small-caps as the Weighted Index and Kuwait 15 Index outperformed the Price index. The Kuwait Price Index improved by 1.3 percent, but traded below the critical 7,000 mark to reach 6,851.62 points by month end. The Weighted Index after breaching the 400 mark in Jun-17, went up by 3.5 percent and traded above the mark to close at 413.29 points, while the Kuwait 15 Index performed marginally better and increased by 3.6 percent to reach 943.17 points. Nevertheless, despite remaining in a trading range, Kuwait continues to record the best YTD-17 performance in the GCC with a return of 19 percent for the Price index, 8.7 percent for the Weighted Index and 6.6 percent for the Kuwait 15 Index.
Trading activity on the exchange jumped with monthly volumes up by 148.1 percent post Ramadan and holidays to reach 1.82 billion shares as compared to 0.73 billion shares traded during June-17. The monthly value traded also almost doubled to reach KD 300 million as compared to KD 150 million during the previous month.
Number of trades also more than doubled to reach 67,408 trades in Jul-17as against 32,532 trades in Jun-17. The monthly volume chart was topped by Alimtiaz Investment Group, with 219 million shares traded during the month followed by Abyaar Real Estate Development and AUB at 124 million and 88 million traded shares, respectively. On the monthly value chart, Kuwait Finance House (+10.8 percent) topped the list with KD 41.1 million worth of shares traded during the month followed by KD 36.8 million for Alimtiaz Investment (6.3 percent) and KD 28.5 million worth of shares for NBK (-3.3 percent).
In terms of sector performance, the Consumer Services index recorded the highest monthly return of 5.3 percent on the back of 36 percent surge in shares of IFA Hotels & Resorts, the best performing stock during the month. The Oil & Gas and the Banking indices recorded positive returns during the month. The Oil & Gas index rose by 5 percent m-o-m was buoyed by NAPESCO, which went up by 15 percent for the month. The gain of 4.8 percent for the Banking index primarily reflected 10.8 percent returns for KFH and was further solidified by the 3.3 percent m-o-m returns from NBK.
Moreover, quarterly earnings for banks shows positive y-o-y growth for the six banks that reported Q1-17 earnings. KFH reported a y-o-y net profit increase of 15.2 percent in H117, while NBK saw its profits move up by 9.3 percent y-o-y as compared to H1-16. The monthly gainers chart also included National Industries Group with a gain of 23.9 percent as the. On the decliners side, the Consumer Goods index witnessed the steepest decline during the month recorded at 11.4 percent as the largest stock in the index - Kuwait Food dropped by 14 percent m-o-m. Shares of First Takaful Insurance topped the monthly decliners list recording a fall of 19.3 percent followed by United Projects Group and Automated Systems Co. with monthly declines of 18.0 percent and 17.4 percent, respectively. The monthly market breadth was strongly skewed towards gainers that included 88 companies while decliners included 59 companies. Prices of 14 companies remained unchanged.
Saudi Arabia (Tadawul)
The relatively weak earnings season led the TASI to decline for the month of July-17, after witnessing a strong Jun-17 where the index went up by over 8 percent m-o-m. The index, which was the only major market to see lower levels, declining by 4.5 percent m-o-m in July17, but still traded above the support level of 7,000 points and closed at 7094.2 points. Index performance was mixed and was mostly skewed towards losers. Food & Beverages was the key laggard as it plunged by 11.9 percent m-o-m. Real Estate Mgmt. & Development and Energy indices followed with declines of 7.7 percent m-o-m and 6.9 percent m-o-m. Telecoms (-5.7 percent), Utilities (-5.6 percent) and Banks (-4.7 percent) were also key indices which pulled down the overall index. Amongst the gainers was the Media index predominantly which went up by more than 125 percent m-o-m in July-17, as Saudi Research and Marketing Group saw its share price end the month up by more 1.5 times. Food & Staples Retailing and Retail also moved by 4.0 percent each m-o-m from the month of Jun-17.
In earning releases, index bellwether SABIC reported a net profit of SAR 3.71 billion in Q217 as against SAR 4.96 billion in Q2-16, representing a drop of 25 percent. Net profit was also down sequentially from SAR 5.24 billion recorded in Q1-17. The drop in net profit y-o-y was due to higher cost of sales and lower sales quantities. In addition to lower selling prices, quantities at Hadeed resulted in a net loss of SR 483 million compared to net income of SR 86 million for Q2-16. H1-17 net profit was higher by 13.6 percent to reach SAR 8.94 billion due to higher average selling prices. Al Rajhi bank reported a net profit of SAR 4.40 billion for H1-17 as against SAR 4.07 billion for H1-16, as the increase was mainly driven by an increase in operating income, which increased due to higher net special commission income by 8.4 percent. Loans and advances portfolio increased by 3.7 percent to SAR 232.8 billion. NCB’s net profit improved by 1 percent in H117 y-o-y to SAR 5.12 billion from an improvement in operating expenses, partly offset by lower total operating income. Monthly trading activity improved in Jul-17, albeit marginally following the Ramadan season and holidays in Jun-17. Monthly volume improved by 0.2 percent to 2.91 billion shares as compared to 2.90 billion shares during the previous month.
Abu Dhabi Securities Exchange
The ADX followed broad key GCC market (ex-TASI) cues and gained by 3.2 percent during the month of July-17. The index closed at 4566.15 points and moved into the green on a YTD basis. Sectoral performance included both gainers and losers. Telecom was the best performing index as it gained by 8.4 percent, as Etisalat (+ 8.3 percent) was able to buoy the index higher. Investment & Financial Services companies also jumped by 6.3 percent m-o-m for the month of July-17, while Banks moved up marginally by 13 percent m-o-m. Real Estate followed & Services followed with gains of 3.0 percent and 1.5 percent respectively from the previous month. Indices which saw lower levels included the Industrials index, which went down by 1.6 percent m-o-m, as larger stocks in the index Gulf Pharma (-1.3 percent) and RAK Ceramic (-1.2 percent) receded for the month of July-17. The Consumer Staples and Insurance indices also saw lower levels as they receded by 1.0 percent and 0.5 percent respectively.
In prominent H1-17 earnings releases, group net Profit for First Abu Dhabi Bank improved 4 percent y-o-y to AED 5.49 billion in H1-17. Key drivers for the performance were revenues at AED 9.85 billion, and the realization of substantial cost synergies post-merger; Impairment charges were 8 percent lower y-oy on the back of higher recoveries and an adequately provisioned portfolio. ADCB reported a net profit of AED 2.114 billion in H1-17 representing a decrease of 2 percent y-o-y from H1-17. Though the Bank’s underlying performance and volumes remained healthy, net profits were impacted by adverse market conditions, which resulted in higher impairment charges and a lower non-interest income in Q2-17. Interest income for the bank of AED 4.849 billion in H1-17 was 15 percent higher yo-y, driven by strong volumes as this was achieved in the absence of higher interest in suspense reversals.
Dubai Financial Market
DFM was the best performing index in the GCC for the month of July-17, even as the index was a relative underperformer YTD. The index went up by 7.1 percent m-o-m and closed at 3633.18 points, which buoyed the index into the green on a YTD basis. Sectoral trends were mostly positive barring the Industrials and the Services indices, as each index receded by 1.6 percent m-o-m for the month of July-17. The Financials pack consisting of Banks, Financial and Investment Services and Insurance were all up for the month. Financials and Investment Services index was the best performing index as it jumped by 12.8 percent m-o-m for the month of July-17, led by 23 percent jump in the share price of Shuaa Capital and a 13.5 percent increase in Dubai Investment’s stock price. Banks went up by 5 percent for the month as all banks closed in the green m-o-m. Insurance companies also closed up by 5.7 percent for the month of July-17. Telecoms were the second best performing index in July-17, gaining by 10.1 percent m-o-m, as both DU and Hits Telecom witnessed doubledigit returns for the month.
In earnings related announcements Emirates NBD saw its net profit go up by 5 percent to AED 3.9 billion in H1-17. Net interest income improved 2 percent y-o-y during the first half of 2017 due to loan growth and helped by a recent improvement in margins. Key driver for the improvement since the beginning of the year as loans reset at higher rates and funding costs improved as liquidity conditions eased. Dubai Islamic Bank saw its net profit rise by 7 percent YoY to AED 2.143 billion in H1-17.
The QE 20 index reversed trends from the past four months and was the second best performing market in the GCC for the month of July-17 after the Ramadan and holiday break. All indices were able to close in the green for the month. The index went up by 4.2 percent m-o-m, but still closed lower than the 10,000point mark at 9406.06 points. The Qatar All Share index, which maps the broader index, also witnessed a move up as it went up by 3.8 percent m-o-m for the month of July-17. Banks & Financial Services companies led the way as the heavyweight index went up by 5.6 percent m-o-m, QNB jumped by 8.7 percent m-o-m. Masraf Al-Rayan and Qatar Islamic Bank followed with gains of 5.8 percent and 4.3 percent for the month. Telecoms was the other major index, which gained and went up by 4.9 percent as both Vodafone Qatar and Ooredoo gained by 8.4 percent and 4.2 percent respectively. Real Estate index followed with gains of 3.1 percent m-o-m for the month of July-17 as Ezdan Holding and Barwa were able to push up the index, as the property stocks went up by 3.7 percent each.
The Bahrain All Share Index, which remains one of the best performing markets, despite declining trends from the previous three months gained ground in July-17, albeit marginally. The index closed 1.4 percent higher on a m-o-m basis during the current month. The index closed at 1327.81 points at the end of the month. Sectoral performance was mixed, as there were indices, which gained and receded. Market breadth for the index favored gainers, as 9 stocks gained ground, while 5 stocks witnessed declines in their share prices. Commercial Banks were up 1.9 percent m-o-m as compared to June-17, as Ahli United Bank increased by 2.9 percent m-o-m. Industrials was the best performing index as the sector gained by 10.4 percent m-o-m as compared to the previous month. The Investment sector also gained, albeit marginally by 0.3 percent for the month of July-17. The Services sector was weakest performing index dropping by 4.4 percent m-o-m, followed by the Hotels & Tourism index and the Insurance index as their m-o-m returns came in 0.8 percent and 0.6 percent respectively. In earnings releases, NBB recorded a H1-17 net profit of BHD 31.74 million, compared to BHD 31.72 million H1-16. The Net Interest Income (NIM) for H1-17 was BHD 34.95 million, compared to BHD 31.82 million for H1-16, representing an increase of 9.8 percent. The increase in NIM was as a result of growth in earning assets and better asset liability management leading to an improvement in net interest margin.
Muscat Securities Market
Oman was the only other index in the GCC which saw declines during the month of July17, and remained the weakest performer in the GCC YTD. The benchmark MSM index was down 1.8 percent m-o-m, closed at 5024.24 points, and lost over 13 percent since the start of the year. All sectoral indices closed in the red for the month. The Industrials index was the main laggard as it declined by 4.6 percent m-o-m, driven by a 9 percent drop in Raysut Cement. Oman Cable Industry (-1.3 percent) and Oman Cement Co (-0.5 percent) also witnessed lower levels as compared to the previous month. The Services index followed with a decline of 3.8 percent driven by a 7.6 percent drop in Phoenix Power, followed by a 4.4 percent drop in Ooredoo. The Financials index also saw lower levels and declined by 1.9 percent driven by Ominvest that receded by 3.5 percent m-o-m. National Bank of Oman followed and went down by 2.8 percent as compared to the previous month followed by HSBC Oman which declined by 2.4 percent as compared to June-17.