Free-falling of oil prices continues to affect MENA markets – MARKAZ MONTHLY RESEARCH REPORT

markazKUWAIT: Financial Centre “Markaz” recently released its Monthly Market Research report that examines and analyzes the performance of equity markets in the MENA region as well as the global equity markets for the month of November.

The report stated that barring Saudi Arabia, Kuwait and Morocco, MENA markets ended in red during the month of November 2015, with Egypt (-14.6 percent) declining the most, followed by Qatar (-13.0 percent), Dubai (-8.6 percent) and Oman (-6.4 percent). Decline in oil price by 10 percent during the month and subsequent monetary tightening has led to the regional market response.

Egypt markets were affected badly after concerns regarding the fall in tourism revenues triggered a massive sell-off, while Qatar and the UAE markets suffered due to falling oil prices and the MSCI rebalancing, after addition of overseas listed Chinese companies to the emerging markets index. Saudi Arabia (1.6 percent), Kuwait Wt.ed index (1.2 percent) and Kuwait Price index (0.5 percent) markets gained marginally in November, due to investor expectation of stabilization of oil price in the OPEC meeting. S&P GCC declined 2.3 percent in November, making it a cumulative YTD declined of 15.4 percent.

MENA markets liquidity continued its momentum in November, with volume increasing by 20 percent and value traded by 7.7 percent, post the lulled market activity in the last quarter. With the exception of Oman and Jordan, other MENA markets witnessed rise in market liquidity, with Bahrain, Kuwait, and the UAE leading the charge. Bahrain showed the most improvement with value traded increasing by 268 percent and volume traded increasing by 167 percent, after being the worst hit in Oct’15.

SABIC (KSA) was the top performing blue chip, gaining 9.1 percent in November, followed by Emirates Telecom (UAE) and Saudi Telecom (KSA), which gained 7.8 percent and 4.7 percent, respectively. Despite SABIC’s Q3 profit falling 9.4 percent to $1.5bn, the company was able to beat analyst estimates by cutting operational costs. Also, SABIC estimates chemical prices to either remain stable or increase in 2016, as China’s economic growth is expected to improve, thereby driving oil demand.

The company is also eyeing overseas acquisition to expand its markets geographically. Emirates Telecom has benefited from its decision to allow foreign and institutional investors to own its shares and has rallied since the announcement made during the previous quarter. Qatari companies, Industries Qatar (-18.3 percent), Ezdan Holdings (-18.0 percent) and Masraf Al-Rayan (-17.4 percent) were the top three losers in November, as they were affected by the rebalancing of the MSCI emerging markets index and the fall in hydrocarbon price.

Standard & Poor’s cut its ratings for Saudi Arabia’s long-term foreign and local currency sovereign credit to ‘A-plus/A-1’, citing a “pronounced negative swing” in the government’s budget balance. S&P kept its outlook for the ratings negative, saying it could lower them further in the next two years unless the government managed a large and sustained cut in its deficit. Moody’s has Pointed out that the fiscal position of Saudi Arabia is weakening, while keeping its rating unchanged. Saudi Arabian corporate earnings declined during Q3 2015 as low oil prices pulled down the wider economy. Cumulative net income at 166 listed companies dropped 14 percent from a year earlier to $7.4bn.

Saudi Arabia’s cabinet recently stated that it was ready to cooperate with OPEC and non-OPEC countries to achieve market stability, before OPEC met on Dec 4 to review its year-long policy of not supporting prices. But the OPEC members were not able to agree on a production ceiling as Iran wanted to scale back its production to levels prior to western sanctions before it considers production curb, which led to further decline in oil price. The market remains over-supplied, with production having risen to a record 97.09mbpd.

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