A reason to be cheerful in 2018?

Middle Eastern stock markets far underperformed the rest of the world in 2017 but as the year ended, beaten-down valuations for shares and plans for higher government spending gave investors reason to expect a better 2018.

Egypt’s stock index surged 21.7 per cent in 2017 as economic reforms bore fruit, but the picture in the Arabian Gulf was little short of disastrous because of geopolitical tensions, sluggish economic growth and sagging real estate prices.

Saudi Arabia’s index edged up just 0.2 per cent during the year compared to a 34 per cent leap for MSCI’s Emerging Markets Index. Among other major Gulf markets, Dubai fell 4.6 per cent and Qatar, hit by a boycott imposed by other Arab states, lost 18.3 per cent.

The new year looks unlikely to be as poor in the Gulf, however, partly because many share valuations have been beaten down to stand in line with, or even below, other emerging markets.

A rise of oil prices in the past few months has let GCC governments slow austerity drives that have slashed economic growth and damaged corporate earnings. Growth is widely projected to pick up moderately in 2018.

“With this backdrop and underpinned by undemanding valuations, we are generally optimistic on the GCC for the year 2018, with the outlook ranging from slightly negative to moderately bullish across the board,” said Bader Al Ghanim, head of GCC asset management at Kuwait’s Global Investment House.

A Reuters poll of 13 leading Middle Eastern asset managers, released yesterday, found 54 per cent expect to raise allocations to regional equities over the next three months and none to cut them, the most positive balance since August.

Saudi Arabia’s index edged down 0.1 per cent yesterday as real estate developer Dar Al Arkan, the most heavily traded stock, sank 5 per cent despite saying it would offer 30 per cent of Dar Al Arkan Properties, which has assets of 2.68 billion riyals, to the public.

The stock had more than doubled in the past three months.

National Commercial Bank, the biggest bank, climbed 2.7 per cent in active trade. Its board proposed increasing the bank’s capital by 10bn riyals to 30bn riyals by issuing bonus shares funded from retained earnings.