Market Update. June 2015 BANK MUSCAT ASSET MANAGEMENT

Transcription

1 Market Update June 2015 BANK MUSCAT ASSET MANAGEMENT

2 GCC Equity Markets All regional markets, except Dubai and Oman, have either been largely flat or have witnessed negative performance so far this month. Egypt is the biggest loser, down by 3% so far this month. The market in Egypt declined as the country posted its highest current account deficit (in the first three months of 2015) in the last two years, mainly driven by a decline in aid payments from its neighbouring gulf countries and exports. Egypt s deficit stood at USD 8.38bn in the nine months of the fiscal year that began on 1 July, compared with a deficit of USD 543.1m in the corresponding period the previous fiscal year. Official transfers dropped to USD 6.4m for the quarter from USD 3.8bn a year earlier. Exports also fell to USD 4.6bn in the third quarter from USD 6.4bn a year earlier. Overall, Saudi remains the top-performing market this year, up 14.7% YTD, followed by Dubai (up 9.1%) and Oman (up 2.4%). Other regional markets are still flat-to-lower for the year. Except for Dubai, Bahrain and Qatar, MoM volumes have fallen for all regional markets. Overall the average volumes traded remain lower than last year. % change % change Avg. Daily Turnover (USD 000) PE Dividend Yield MTD YTD YTD 2015 % change YoY 2015 LTM Egypt -3.0% -4.6% 51, % S Arabia -1.3% 14.7% 22,56, % Bahrain 0.1% -4.3% 1, % Kuwait 0.8% -4.8% 36, % Qatar -1.2% -3.1% 1,10, % Abu Dhabi 0.5% 0.4% 65, % Oman 1.7% 2.4% 11, % Dubai 5.0% 9.1% 1,75, % Source: Bloomberg *As of 15 June 2015 Economic & Corporate News UAE Central bank's banking statistics for April: Loan growth improves, deposit growth falls: April data from the United Arab Emirates (UAE) central bank shows that net loans grew 8.4% YoY (+0.8% MoM) in April 2015 compared with 8.2% YoY last month. Deposits rose 7.2% YoY (-0.6% MoM) vs. 8.8% YoY last month. The loan-to-deposit ratio increased to 98.6% in April from 97.3% in March. Non-resident deposits increased 22.1% YoY but decreased 0.9% MoM. Personal loans grew 8.3% YoY and 1.3% MoM, while corporate loans increased 7.1% YoY and 0.7% MoM. (Source: Central Bank of the UAE) UAE non-oil business growth slows marginally in May PMI: Business activity growth in UAE s non-oil private sector slowed marginally in May as new orders expanded at a slow pace, a corporate survey showed. The seasonally adjusted HSBC UAE Purchasing Managers' Index, which covers manufacturing and services, edged down to 56.4pts in May 2015 from 56.8pts last month. The 50-point level separates growth from contraction in the survey of 400 firms. With robust employment growth, the PMI looks set to remain comfortably inside the growth territory over the coming months. Output growth rose to a three-month high index reading of 62.8pts in May from 62.0pts in April, but the increase in new orders fell to 60.9pts from FOR INTERNAL USE ONLY RESTRICTED Page 2 of 6

3 62.1pts. Employment growth improved slightly. Output prices fell for a fourth straight month, with the index at 49.7pts, while input price inflation eased to 51.6pts from 52.3pts. (Source: Reuters) Cheap oil to push UAE into its first fiscal deficit since 2009 IMF: The UAE is set to post its first fiscal deficit since 2009 because of lower oil revenues. The International Monetary Fund (IMF) said that its consolidated fiscal balance is expected to swing to a deficit of 2.3% of GDP in 2015 from a 5.0% surplus last year. However, the deficit posed no significant threat to the economy. As on June 4, 2015 oil prices, the UAE could keep spending at current levels for at least years, drawing on its ample financial reserves. The IMF is urging the UAE to consider slowing down its current spending (expenditure in areas such as wages and raw materials) while expanding its revenue base with new taxes. The IMF predicts that its GDP growth will slip to 3.0% in 2015 from 4.6% last year, but will edge up to 3.1% next year. (Source: Reuters) Dubai among the world's worst-performing property markets in Q1: Dubai's real estate market was one of the worst performing globally in Q1 2015, with house prices down by nearly 4%. Knight Frank's Global House Price Index ranked Dubai 53 out of the 56 property markets analysed for annual price growth. Ukraine, Cyprus and China s annual price growth was worse, falling 15.5%, 8.2% and 6.4%, respectively, compared with Dubai's slump of 6.1%. Hong Kong led the rankings (up 18.7% YoY) due to limited supply pushing up mainstream prices, followed by Turkey (18.6%) and Ireland (16.8%). (Source: Abu Dhabi s First Gulf Bank (FGB) set to raise USD 3bn Euro-commercial paper: FGB, UAE s thirdlargest lender, plans to raise as much as USD 3bn under a euro-commercial paper programme to diversify funding. The programme will increase the bank s liquidity and will help manage its short-term liability profile. The funds will be used for general corporate purposes. FGB received an expected senior unsecured rating of F1 (EXP) from Fitch Ratings and a provisional (P) Prime-1 (P1) short-term local and foreign currency rating from Moody s Investors Services. (Source: Bloomberg) QATAR Works in progress: Qatar is pouring billions of dollars into creating a world-class infrastructure to support its long-term socio-economic ambitions. Big ticket projects, such as the USD 40bn railway and metro, a USD 8bn new port, USD 4bn-worth of sports stadiums, a USD 11bn expressway project, a mega water reservoir scheme, hotels and malls are all slated for completion over the medium term as the country gears up for the 2022 World Cup. The Qatar Economic Outlook ( ) expects Qatar s construction sector to expand by 14.1% in 2014, up from 13.6% in previous year. Qatar s infrastructure spending over the next decade is estimated at between USD 150bn and USD 206bn, which takes into account not just headline projects but also the associated schemes that will be required to stage the 2022 World Cup. (Source: The Gulf) Qatar cuts its 2015 GDP growth forecast, sees deficit in 2016: Qatar cut its 2015 economic growth forecast to 7.3% from 7.7% and now expects its budget to swing to a deficit in 2016, as opposed to a surplus projected six months ago. The forecast still implies a pick-up in real GDP growth from 6.1% in The Ministry of Development Planning and Statistics expects Qatar s fiscal surplus to narrow considerably in 2015 to 1.4% of nominal GDP from 12.3% in Qatar Economic Outlook forecasts that the overall fiscal balance will register its first deficit in 15 years in 2016, estimated at about 4.9% of GDP. (Source: Reuters) Qatar land price surge threatens property profitability: Land accounts for about half the value of real estate sales in Qatar, 10 times that of developed markets. Land prices have surged to levels that may make even high-margin luxury developments unprofitable to build. FIFA s selection of Qatar to host the 2022 World Cup has exacerbated this trading, although population growth and a broadly buoyant economy are the main FOR INTERNAL USE ONLY RESTRICTED Page 3 of 6

4 drivers of the land boom. The central bank s Qatar Real Estate Price Index, which includes land, villas and residential buildings, hit 271.3pts in March 2015, up from in January Land prices make it difficult to develop low- to middle-income housing and in some areas, speculators have pushed up prices to levels at OMAN which it is not financially viable to develop any kind of property. (Source: Reuters) Oman s total exports fall by 5.7% to OMR 20.5bn: Oman s total exports in 2014 declined by 5.7% to OMR 20.5bn from OMR 21.7bn the previous year. The fall in export revenue was mainly on account of a plunge in oil and gas prices in international markets and re-exports. Exports of crude oil, petroleum products and liquefied natural gas plunged by 6.7% to OMR 13.39bn in 2014 from OMR 14.35bn in the previous year. Of this, crude oil exports fell 6%, while liquefied natural gas exports were down by 10.6%. However, non-oil exports surged ahead 8.4% to OMR 4.12bn for 2014 against OMR 3.81bn witnessed in (Source: Zawya) Oman s government revenue dips 24% to OMR 2.4bn in the first quarter: Oman s government revenues fell in Q by 23.9% to OMR 2,447.3m from OMR 3,214.4m for the same period last year, predominantly due to a decline in oil revenues. According to the Central Bank of Oman, net oil revenues plummeted by 35.3% (or OMR 913.5m) to OMR 1,673.4m from as high as OMR 2,586.9m during the threemonth period under review. This was because the average price of Oman crude in the international market dipped by 41.5% to USD 62.0 per barrel in the first three months of this year, from as high as USD per barrel for the same period in (Source: Times of Oman) Oman cuts defence, subsidy spending, and keeps investing as oil price falls: Oman s government has responded to low oil prices by cutting spending on defence and subsidies while continuing to invest in diversifying the economy. The government swung to a budget deficit of OMR 544.6m in Q from a surplus of OMR 215.4m a year ago. However, the government is continuing to spend on infrastructure and economic development projects, such as roads, ports, airports and industrial facilities, which it hopes will broaden the economy and eventually reduce its dependence on oil. Public investment spending rose 2.3% to OMR 555.4m, with spending on civil ministries up by 9.8% to OMR 896.4m. However, current spending on defence and national security dropped 25% to OMR 567.3m. Spending on participation and support, which includes subsidies, fell 48% to OMR 189.0m. (Source: Reuters) SAUDI ARABIA IMF lifts outlook for Saudi GDP, sees bigger budget gap this year: The IMF raised its outlook for Saudi Arabia s economic growth this year but has also predicted a much bigger state budget deficit. The IMF forecast GDP growth of 3.5% in 2015 (unchanged from 2014). This marks an upgrade from last month when the IMF forecasted 3.0% growth for The IMF also projected that the government s fiscal deficit would be around 20% of GDP in 2015 much larger than the 14.2% gap that it had forecast in May, and the biggest deficit since at least (Source: Reuters) Saudi s Almarai approves a USD 5.6bn capex plan for : The board of Saudi Arabia s Almarai has approved a capital investment plan which will reach SAR 21bn (USD 5.6bn) in the next five years. The gulf's largest dairy firm said the programme will replace its existing investment plan, spending worth SAR 15.7bn between 2013 and 2017, and would cover expansion in farming, manufacturing, distribution and logistics. It will use its growing operating cash flow besides bank facilities, money from the Saudi Industrial Development Fund (SIDF) and the Agricultural Development Fund (ADF) or its existing sukuk programme to finance its investment plan. (Source: Reuters) FOR INTERNAL USE ONLY RESTRICTED Page 4 of 6

5 KUWAIT Kuwait inflation ticks up to 3.4% in April: Inflation in the Consumer Price Index (CPI) rose slightly to 3.4% YoY in April 2015 from 3.3% YoY last month. The pickup was mainly due to a rise in local food inflation. However, local food inflation remains relatively low and is expected to trend lower, given the continued decline in international food prices. The stronger dinar should also help fend-off any significant upward inflationary pressures. Overall inflation is expected to average close to 3.5% in (Source: Kuwait Times) Mezzan Holding Debuts on Kuwait Stock Exchange: Mezzan Holding, one of the largest manufacturers and distributors of food, beverage, FMCG, and pharmaceutical products in the Gulf, today debuted on the Kuwait Stock Exchange, trading with the ticker "Mezzan". Mezzan Holding operates 29 subsidiaries and is operationally structured into two primary business lines: the Food Business Line and the Non-Food Business Line. The company manufactures and distributes over 358 leading consumer brands, including consumer favorites such as Kitco chips and snacks, Country Rice, Khazan meat products, Aqua Gulf, Pillsbury, Green Giant, Sara Lee, Betty Crocker, and Tabasco. The company is also the exclusive distributor of Starbucks chilled products, Johnson & Johnson, Dettol cleaning products, Kleenex, Listerine, Pif Paf, Huggies, Clearasil, Neutrogena, Zyrtec, Tylenol, Olfen, Mesporin, Gaviscon, and numerous other products. (Arab Times) EGYPT Egypt's current account into the red due to trade deficit and pause in aid: A widening trade deficit and a pause in aid payments from Gulf Arab allies has caused Egypt to post its deepest current account deficit in more than two years during the first three months of 2015 despite a surge in foreign direct investment. A current account deficit of USD 4.1bn was recorded in Q1 2015, down from a surplus of USD 322.9m in the same quarter last year, driven by a contraction in net transfers and lower export receipts. The drop can be traced largely to an interlude in deposits from Gulf Arab allies, with calculations showing that official transfers, including cash and commodities, fell to USD 6.4m for the quarter from USD 3.8bn a year earlier. Exports also dragged on the deficit, dropping to USD 4.6bn in the third quarter from USD 6.4bn a year earlier. (Source: Reuters) Egypt raises USD 1.5bn in its first international bond sale for five years: Egypt s government conducted its first international bond sale in the last five years, underlining a return of economic and political stability to the country after its 2011 Arab Spring uprising. Egypt sold USD 1.5bn of 10-year bonds at a yield of 6%, drawing more than USD 4.5bn of investor orders. Foreign portfolio investors left the country en masse in 2011, freezing it out of the international debt market. However, economic growth has begun to pick up and state finances have strengthened after President Abdel Fattah al-sisi took office last year. The market price of Egypt s outstanding dollar bond maturing in 2020 reflects this growth; it is trading at a yield of 4.37%, near a life low of the 3.98% last December and down from a peak of the 11.09% in June The bond sale was arranged by BNP Paribas, Citigroup, JP Morgan, Morgan Stanley and Natixis. (Source: Reuters) IPO of Emaar Properties Egyptian unit gets a strong start: Institutional investors were more than two times oversubscribed to the IPO of Emaar Properties Egyptian subsidiary (Emaar Misr) by more than two times in the initial few hours itself. The Dubai-based developer announced an indicative price range of EGP 3.50-EGP 4.25 a share for the IPO of 600m shares in Emaar Misr. At the maximum price, the IPO would raise about EGP 2.55bn. Subscriptions for the 510m shares allocated to institutional investors began on 3 June and will run until 16 June. The subscription period for retail investors, who have been allocated about 90m shares, will open on 16 June and will run until 25 June. EFG Hermes and JP Morgan are acting as joint book runners FOR INTERNAL USE ONLY RESTRICTED Page 5 of 6

6 for the offering, with Emirates Financial Services acting as the lead manager. The company plans to use the net proceeds raised from the offering, together with its existing cash resources, principally to further the development of the commercial areas of its projects under development. (Source: The National) Market Outlook Our near-term outlook for the region remains cautiously optimistic. We expect markets volumes to drop during the first couple of weeks of Ramadan which is set to start on the 18 th of June In addition, the Saudi market has finally opened up to foreign investors but as expected QFI (Qualified Foreign Investor) inflow during the first couple of days has been muted. On the positive side, the Tadawul CEO has highlighted that the process for approval for QFI s will evolve and become easier and reiterated his goal of getting the Saudi market included in the MSCI Emerging Market index by The Qatar Exchange remains under pressure with the resignation of recently re-elected FIFA President Sepp Blatter which casts fresh speculation about Qatar being stripped of hosting the World Cup While sentiment may be impacted, the direct impact due to potential loss of the World Cup 2022 hosting rights is small in our view as direct World Cup-related spending (stadiums and hotels) is only US$16bn while ancillary infrastructure spending, above and beyond the direct World Cup-related capex, is much larger at US$ bn. Our longer term outlook for the region remains positive and is underpinned by favorable demographics, accelerating growth in the non-oil sector and high government spending on infrastructure. The low dependence on the hydrocarbon sector (33% in 2014 from 41% in 2000) is a result of continuous diversification policies adopted by the GCC nations. In addition, their excessive sovereign wealth funds and external surpluses can help them deal with low oil prices for a significant period of time. The retail sector would be the leading driver of this growth, owing to strong economic growth in the region, growing purchasing power, increasing population due to the influx of a large number of expatriates, changing consumption patterns and increasing penetration of multinational retail players. FOR INTERNAL USE ONLY RESTRICTED Page 6 of 6