GCC markets start the year with recovery amid minimal volatility

KUWAIT: The performance of GCC markets was largely positive in January-18 with Muscat being the only market witnessing a monthly decline. The positive performance was also reflected in the MSCI GCC Index which surged 5.8% during the month. Markets also got passive support from oil prices that reached the highest level in three years and remained elevated on the back of tightening market conditions, further supported by improving global economic growth.

Trading activity during the month remained almost flat with monthly value traded at USD 28 Bn, while volume increased by 15.5% to 14.6 Bn shares. Qatar was the best performing market in the GCC continuing the trend seen at the end of last year, followed by Saudi Arabia. UAE markets also had a positive trend with Abu Dhabi recording a surge of 4.6% while Dubai, which surged 5.1% by mid-month, witnessed a sell off during the second half of the month, resulting in a marginal monthly gain of 0.7%. The performance of Boursa Kuwait was steady with a 4.4% return for the Price index. On the decliners side, weakness in the MSM 30 Index continued from last month, as the index declined by 1.9% in January-18.

The growth during the month was led by large-cap sectors, including Banking and Oil & Gas, primarily on the back of positive earnings announcements for full year 2017. Net income reported by 29 GCC banks by the end of the month showed an increase of around 15%. Meanwhile, telecom stocks also had a largely positive trend with Kuwait-listed telcosZain and Ooredoo posted positive returns during the month. In Saudi Arabia, the Banking sector recorded the strongest monthly gain of 11.2% as shares of all the banks witnessed positive returns. Qatari banks also had a positive run with the Qatari Banking & Financial Services Index recording a gain of 5.7%, as investors continued buying large-cap fundamentally strong stocks.

Boursa Kuwait

The gradual surge in Kuwaiti market continued during January-18 with the Price index up by 4.4% while the weighted index growth was much milder at 2.6%. The large-cap Kuwait 15 index gained 2.8% during the month following gains recorded by almost all the constituents of the index. The monthly sector performance chart was led by the Telecom index that recorded a gain of 6.8% after shares of Zain went up by 8.8% following first profit reported by the telcos Saudi Arabian operation. In addition, a 6% gain in shares of Ooredoo Kuwait also supported the gain in the telecom index. The Real Estate index had the second biggest monthly gain of 4.9% despite a majority of the larger stocks in the sector recording monthly decline that were more than offset by 4.3% gain in shares of Mabanee.

The Banking index also had a positive show during the month with a gain of 2.3% after declines recorded by KIB (1.3%) and Warba Bank (-2.6%) were offset by positive performance recorded by the rest of the banks. In terms of trading activity, the exchange recorded a strong recovery with both volume and value traded recording solid month-onmonth growth. Monthly volume traded more than doubled to 2.6 Bn shares as compared to 1.2 Bn shares during the previous month, while monthly value traded improved by more than two-thirds to KWD 322.9 Mn as compared to KWD 192.5 Mn during December-17. Shares of KFH (+1.6%) garnered the most interest in terms of value traded recording total trades worth KWD 44.2 Mn followed by NBK (+1.6%) and Zain (+8.8%) at KWD 36.3 Mn and KWD 27.9 Mn, respectively. The monthly gainers chart was topped by Amwal Intl. Investments recording a gain of 77.7% followed by REAM and Kuwait & Gulf Link Transport with gains of 68.8% and 66.7%, respectively.

On the decliners chart, Hilal Cement topped with a fall of 35.9%, while the rest of the decliners were relatively small at 16.7% for ABAR and 15% for GIG. Meanwhile, in a significant development on the regulatory front and with an eye on improving liquidity, Boursa Kuwait announced the guidelines for the bifurcation of listed companies in three groups i.e. Premier, Main and the Auction market. The first category is set to include large to mid-cap companies with relatively higher liquidity. The requirements for this group is expected to be high while on the other hand, for the companies in the Main market, a specified minimum liquidity has to be maintained failing which the company would be moved to the auction market. A total of 16 companies have been qualified for the premier market while a majority of the companies would be in the auction market. In economic news, Kuwait’s Ministry of Finance announced budget for 2018/19 with a deficit of KWD 5 Bn (pre-FGF). Revenue is expected to increase by 13.1% to KWD 15 Bn on an oil price of USD 50/b, while expenditure is expected to remain flat at KWD 20 Bn. Oil revenue is budgeted to grow by 13.7% to KWD 13.3 Bn (89% of revenue) while non-oil revenue is expected to grow by 8.5% to KWD 1.8 Bn.

Saudi Arabia (Tadawul)

Saudi Arabia’s benchmark TASI recorded the second biggest monthly gain during January-18 after investors focused on large-cap stocks. The banking sector was the top performer with a return of 11.2% followed by Health Care Equipment & Svc index with a return of 10.6%. Banking sector gains were led by positive returns recorded by all the listed banks with most of them seeing double digit growth. Earnings for the banking sector saw healthy growth during 9M-17 and full year profits are estimated to continue the trend. Moreover, with the increase in project activity and the government focused on meeting its targets, the participation of banks in the economy is set to increase. Recently, the government asked local banks for an RFP to refinance its USD 10 Bn international debt and to help the government raise debt by other means.

In addition, according to a SAMA report, domestic liquid assets of Saudi banks reached a record high in 2017 at SAR 457 Bn despite modest deposit growth. Commenting on the numbers, Moody’s forecasted a positive view of the sector on the back of a recovery in economic activity in the Kingdom in the next 12-18 months, based on governments budget spending plans. The agency said that Saudi banks would benefit from the USD 19 Bn injection by the Saudi government announced in December-17 that are aimed at boosting the non-oil sector. The higher liquidity would help the banks take on much of the lending growth in 2018, according to Moody’s.

Trading activity during the month took a slight hit with volumes down by 11.2% and value traded contracting by 6.1%. Almost 4.41 Bn shares were traded during the month valued at SAR 82.1 Bn. Dar Al Arkan Real Estate Dev Co. topped the monthly value and volume charts with a total of 1.6 Bn shares traded during the month valued at SAR 16.9 Bn. The stock was also the top decliner durin g the month recording a fall of 30.4% after investors booked profits on last years rally on the stock. SABIC was second on the monthly value chart recording SAR 10.6 Bn in trades with a volume of 101 Mn shares. Alinma Bank stood third on the monthly value chart and second on the volume chart with 426 Mn shares traded worth SAR 8.5 Bn.

Abu Dhabi Securities Exchange

After ending 2017 in the red, ADX opened 2018 strong, as the index gained by 4.6% in Jan-18. The index closed at 4602.23 points, as larger sectors performed well in the first month of 2018. The Financials pack had a strong month, led by the Investment & Financial Services index which gained by 9.2% m-o-m, driven by a 10.2% increase in Waha Capital’s share price. Banks also closed strong for the month of Jan -18, as the index moved up by 7.0% m-o-m driven by a 9.3% increase in the share price of First Abu Dhabi Bank and a 6.6% move up in ADCB’s share price. The Insurance index was also up by 6.1% m-o-m in Jan-18. The Real Estate sector improved by 4.6% m-o-m, as Aldar Properties improved by 4.1% m-o-m, while Eshraq Properties and Ras Al Khaimah Properties went up by 5.6% and 8.5% m-o-m. Sectors that declined was led by Consumer Staples as the sector fell by 5.4% m-o-m, driven by a 8.9% drop in the stock price of Agthia Group.

The Energy sector and Services sector also receded as they went down by 3.7% and 1.8% respectively m-o-m. In terms of full year earnings release for 2017, First Abu Dhabi Bank reported group net profit that amounted to AED 10.92 Bn, while adjusted group net profit for 2017 came in at AED 11.52 Bn, broadly in line with 2016. Group revenues came in at AED 19.53 Bn, down 4% y-o-y, as the decrease mainly ascribed to relatively softer market conditions compared to 2016, and portfolio optimization initiatives implemented throughout the year in order to enhance risk-adjusted returns. Net Interest Income including Islamic Financing Income for

2017 was down 3% to AED 13.11 Bn, driven by margin compression, as a result of portfolio optimization and lower interest in suspense (IIS). ADCB reported a net profit of AED 4.3 Bn, an increase of 3% y-o-y, while the bank reported strong topline growth with net interest and Islamic financing income growing by 8% y-o-y to reach to AED 6.7 Bn. In funding action, banks took the Formosa bond route where bonds are sold in Taiwan by foreign borrowers and are denominated in currencies other than the Taiwanese dollar. First Abu Dhabi Bank issued a USD 610 Mn Formosa Bond with a 30-year tenor and was callable or redeemable by the issuer every five years. Similarly, ADCB raised USD 540 Mn through the sale of a Formosa bond during Jan-18 as well.

Qatar Exchange

After closing 2017 as the worst performing GCC market, the QE 20 ended Jan-18 as the best performing index in the region. The QE 20 rose by 8.0% and closed at 9204.62 points. The Qatar All Share index which maps the broader market also rose by 5.6% m-o-m, as most major sectors closed the first month of the year in the green. Market breadth was also strong as 27 companies advanced during the month while 17 companies lost ground.

The Transportation index was the top performing sectoral as it went gained by double digits (+13.7%) during Jan-18, followed by the Consumer Goods & Services index which went up by 9.3% m-o-m. Larger indices such as Banks and Financial services also moved up by 5.7% m-o-m as QNB rose by 7.3% m-o-m. QNB gained by 7.3% m-o-m and was the main driver for the Banks and Financial Services sector, while Masraf Al Rayan also moved up by 7.0% m-o-m. The Real Estate index was up 3.6% m-o-m as Barwa Real Estate and Union Real Estate both posted 18% gains each for the month, which was offset by a 4% drop in the share price of Ezdan Real Estate. Indices which receded in Jan-18 included Insurance (-2.5%) and Telecoms (-0.3%).

In full year earnings releases, QNB 2017 net profit reached QAR 13.1 Bn, up 6% y-o-y, as key drivers were a growth in net fee and commission income, reduction in total expenses and lower impairment charges on loan book. Net interest income after EGP devaluation impact increased by 7% y-o-y to reach QAR 17.8 Bn in 2017 as compared to QAR 16.7 Bn in 2016. For Qatar Islamic Bank, net profits improved by 6% yo-y to reach QAR 832 Mn, while total revenues improved by 8.8% y-o-y from QAR 1.7 Bn in 2016 to QAR 1.9 Bn in 2017. Real estate player Ezdan Holding Group reported a net profit decline from QAR 1.8 Bn in 2016 to QAR 1.7 Bn in 2017, which translated into EPS of QAR 0.64 per share in 2017 as compared to QAR 0.68 per share in 2016. In funding related action, QNB Group completed their inaugural Kangaroo bond issuance under its Kangaroo program, which was a AUD 700 Mn transaction, and was was executed with 5Yr and 10Yr maturities. The issuance was part of QNB Group’s strategy to tap new stable funding sources from new markets.

Bahrain Bourse

After ending 2017 as one of the top performing markets in the GCC, Bahrain started off 2018 in the green as well, but gains for the month of Jan-18 was lower than some of the other GCC markets. The Bahrain Bourse gained by 1.4% for the month of Jan-18, as the largest sectoral index Commercial Banks gained by 3.0%. Market breadth for the month favored gainers, as 15 stocks advanced while 7 stock saw lower levels. The index closed at 1350.67 points at the end of the month. Commercial Banks were primarily driven by Al Salam Bank, which went up by 6.1% m-o-m, followed by AlKhaleeji Commercial Bank (1.7%) and Bank of Bahrain and Kuwait (+1.5%). The Industrials index was the best performing index for Jan-18, as it went up by 3.2% m-o-m driven solely by Aluminium Bahrain, which went up by 3.2% m-om.

The Investment sector was the worst performing index and the only index that dropped in Jan-18, as it declined by 1.7% m-o-m, as Arab Banking Corp and GFH declined by 6.8% m-o-m and 3.4% m-o-m. The sector dropped despite a strong performance from Ithmar Bank, which finished the month as the top performer in the over Bahrain Bourse. In terms of prominent full year earnings released for 2017, National Bank of Bahrain reported Net Profit of BHD 61.01 Mn, an increase of 4.8% compared to BHD 58.24 Mn. Net Interest Income came in at BHD 73.07 Mn for 2017 as compared to BHD 65.99 Mn for 2016 as the increase of 10.7 % was ascribed to growth in earning assets and effective asset liability management. Total operating costs decreased to

BHD 32.99 Mn in 2017 from BHD 34.09 Mn in 2016, resulting in a significant improvement in Cost to Income ratio to 31.6 % in 2017 from 35.2% in 2016.

Investment company Esterad reported a net profit of BHD 1.41 Mn in 2017 as compared to a loss of BHD 1.38 Mn in 2016. Investment Income for 2017 came in at BHD 2.5 Mn as compared to BHD 1.9 Mn in 2016.