The top 100 companies in the GCC

AS WE REVEAL OUR RANKING OF THE GULF’S TOP 100 COMPANIES BY MARKET CAP, IN ASSOCIATION WITH MARMORE MENA INTELLIGENCE, WE LOOK AT THE IMPACT THE GCC’S LEADING PRIVATE COMPANIES ARE HAVING ON THE REGION’S MARKETS, AND WHAT IT MEANS FOR THE MONTHS AHEAD

We rank the Gulf’s top 100 companies by market cap, and examine the impact they have had on regional markets

THE GCC HAS ENJOYED A POSITIVE YEAR SO FAR IN 2018, WITH ITS

leading 100 companies contributing to some impressive market gains in what has been a time of great change for the region.

Widespread diversification, a fastevolving tech landscape, socio-economic developments and global headwinds are among the challenges that private companies have had to navigate in recent months, by and large reacting with great success.

This has been reflected across a number of indices, including the S&P GCC index, which registered a gain of 6.3 per cent up to mid-September, buoyed by a number of positive developments. Among these are the inclusion of Saudi Arabia and Kuwait in emerging market indices, strong reform momentum across Gulf states, and a continuous recovery in oil prices.

For most of this year, Saudi Arabia and Kuwait were favourites among investors, largely due to expectations that Saudi Arabia would join the MSCI emerging markets index in 2019, and FTSE Russell’s decision to upgrade Kuwait to secondary emerging market status.

Based on market performance, the Abu Dhabi Index and Boursa Kuwait stood out with registered gains ( year to date) of 12.9 per cent and 9.1 per cent respectively. Saudi Arabia’s Tadawul, which had a good first half registering double digit gains, consequently pared down its gains as the news of much awaited Saudi Aramco IPO was put on hold. The recovery of oil price, which has now more than doubled since its low in 2016, and successful issuance of bonds to raise capital from international markets has enabled Saudi Arabia to better manage its finances.

At the other end of the scale however, the Muscat Index shed 10.5 per cent while Dubai’s Index was down 17.7 per cent – largely led by declines in real estate stocks.

Global view

Among global markets, US equities continued their upward march with the S&P 500 index scaling new highs and outperforming other developed markets at 8.7 per cent. Robust economic expansion on the back of tax cuts led companies to report strong earnings, beating analyst estimates. The UK’s FTSE, on the other hand, witnessed a slowdown and lost 5 per cent as Brexit negotiations continued to cause additional uncertainties.

Trade relations between the US and China weighed on investor sentiment, with the US decision to move ahead with tariffs on Chinese goods and limit Chinese investment contributing to market volatility.

During the year, emerging markets lost their sheen to a degree, as foreign investors started withdrawing their capital on account of strong expansion of economic activity in the US and subsequent interest rate hike by the US Federal Reserve. Ensuing trade tensions and renewed geopolitical risks have further exacerbated the situation. As a result, the MSCI Emerging Markets index has lost around 11.2 per cent so far this year.

The impact of this drop has been felt most keenly in emerging market currencies. Argentina is struggling to shore up its peso, which has more than halved in value despite massive interest rate rises to 60 per cent. India’s rupee has registered record lows this year and South Africa’s rand, Russia’s ruble and Brazil’s real have all lost between 15 and 20 per cent so far this year.

Positive signs

The second half of 2018 started on a positive note for GCC stock markets, with Kuwait emerging as the top performer among its regional peers. The performance of these markets was attributed to the strong performance of banking stocks across the Gulf.

Major banks in the region posted solid growth in earnings for Q2, with their profitability boosted by rising interest rates,

an uptick in economic activity and increased government spending. Kuwait’s blue chip companies, Kuwait Financial House (KFH) and National Bank of Kuwait (NBK) were the best performers, gaining 8.2 per cent and 8 per cent respectively.

Crude oil prices have averaged $73 per barrel so far this year and could average $74 per barrel in 2019, according to the Shortterm Energy Outlook by the US Energy Information Administration. The price of oil has hit its highest level since November 2014, reaching more than $80 per barrel in recent months as geopolitical fears cause concerns to rise over potential disruption to supplies.

Despite the positive signs however, stock market liquidity in most GCC markets has deteriorated due to declining investor sentiment. Increased risk perception and a lack of new IPOs continue to act as an impediment in a market that is largely dominated by retail participants.

Road ahead

The MSCI GCC index currently trades at a trailing price to earnings ratio of 14.1, which is on par with MSCI Emerging Markets (13.8) and Frontier Market (14.4) indices. However, with expectations of rising oil prices, currencies that are pegged to US dollar appear relatively attractive over other emerging and frontier markets. Subsequent US rate hikes could spur similar activity among GCC central banks.

A rising interest rate environment could enhance the profitability of GCC banks in the short term, as most of the banks have large non-interest bearing deposits, which means that the impact of cost of funding will be very moderate.

On the other hand, loans could be quickly repriced upwards. A rise in global oil prices along with a hike in production has lifted the outlook for the entire petrochemical sector, for example. On the other hand, rising trade tensions could limit upside potential.

Debt market

The S&P GCC Sukuk index has lost 0.15 per cent ( year to date), indicating a somewhat flat year for the debt market in the GCC region so far.

Since the decrease in oil revenues, following the precipitous price plunge in mid-2014, Saudi Arabia has been one of the biggest bond issuers in emerging markets, beginning with its sale of dollar bonds in 2016. It raised $21.5bn in 2017 and $17.5bn in 2016, and plans to borrow the equivalent of $31bn this year to bridge the expected budget deficit of $52bn and fund growth plans after a 2017 recession.

Furthermore, Saudi Arabia has raised $2bn in new sukuk, or Islamic bonds, completing its external funding requirements for 2018.

Gulf countries account for close to a third of the world’s proven oil reserves, and have tapped into the bond markets in recent years to fund their fiscal deficits resulting from the three-year oil price slump. Their combined issuance have accounted for a quarter of all new debt sold by emerging markets in each of the last three years, according to

Following the news surrounding the inclusion of Saudi Arabia and Kuwait equity markets in the MSCI Emerging Market index, JP Morgan has announced that it is considering including sovereign bonds from the GCC states in the EM Sovereign Index, the JP Morgan Emerging Markets Bond Index (EMBI). About $150bn of debt from the GCC could potentially be added to this index with an expected weight of 12.33 per cent. The inclusion of the Gulf region into JP Morgan’s widely tracked EMBI could lead to $30bn to $45bn of inflows. However, as many EMBI funds already hold benchmark GCC sovereigns in their portfolios the inflow value could be at the lower end of the range. Possible inclusion of GCC sovereign debt could prove to be a major boost to the region, deepening regional debt markets while lowering the borrowing costs and increasing demand for overall debt issuance.

YTD returns

In 2018, all the top 10 companies in terms of stock price performance had a year-todate return of more than 50 per cent, while five companies registered 100 per cent returns or more.

Remarkably, Kuwait based Al Madar Finance & Investment Co. had the highest YTD return of 323 per cent, followed by Heavy Engineering Industries and Shipbuilding Company (155 per cent). Oman based National Aluminium Products Company yielded 114 per cent, securing the third spot.

Out of the top 10 companies that registered highest YTD returns, four were from the industrial sector, with the remaining six spread across various sectors including banking, basic materials, utilities and consumer non-cyclicals. Country wise, Kuwait had the maximum number of companies (six), followed by Oman (two), the UAE (one) and Bahrain (one). Overall, the average YTD return for the top 10 stocks in the GCC was 115 per cent, compared to 2017's 110 per cent.

By market capitalisation

Saudi Basic Industries Corporation (SABIC) retained first place in 2018, with Saudi Telecom Company in second spot, up one position compared to last year. First Abu Dhabi Bank also moved up one spot into third position, while Emirates Telecommunications Group Co (Etisalat) slipped two points down from its second position to fourth. Among the top 10 companies by market cap, four belong to the banking sector, two belong to the telecoms sector and two belong to the chemical sector. The utilities and transportation sector have one company each in the list.

By revenues

The top four companies in terms of revenue are Saudi Basic Industries Corporation, Saudi Electricity Company, Emirates Telecommunications Group Co, and Saudi Telecom Company. Saudi Electricity Company and Saudi Telecom Company switched positions from last year whereas the other two retained their spots. Saudi Arabia accounted for five companies, followed by the UAE (three) Oman (one) and Kuwait (one) in the top 10 companies by revenue.

By earnings

Saudi Basic Industries Corporation retained first place, with First Abu Dhabi Bank in

second position and National Commercial Bank landed on the third spot. Among the top 10 companies by net income, seven were from the banking sector, two from telecommunications and one from the basic materials sector. Five companies from Saudi Arabia and five from the UAE were among the top 10 companies by earnings.

By liquidity

The majority of the companies in terms of value traded are from Saudi Arabia in 2018’s top 100 list. Indeed, all the spots in the top 10 were taken up by companies from Saudi Arabia. The top three companies include Saudi Basic Industries Corporation, Alinma Bank, and Dar Al Arkan Real Estate Development Company.