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

Gulf Business - - FEATURES -

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.

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