After a dismal first quarter, April provided respite to equity market participants, with a global recovery in share prices. The MENA equity markets performed better than global peers, with a more than 8% gain for the month and only Morocco ending in the red. Qatar stole the show with an 18% return for the month as very impressive first-quarter earnings more than justified current valuations and led to a dramatic re-rating of the market. Oman remains the best performing regional market, with a 24% year-to-date return and a return of close to 11% in April. Although the ongoing economic issues in the US continued to negatively affect consumer and investor confidence, financial markets around the world looked beyond short-term risks and volatility. This was particularly the case for investors in MENA, with markets largely insulated from the unraveling of the global credit bubble. Whereas the prevailing theme in developed markets is of economic healing in the months ahead, MENA economies are in the midst of an economic resurgence, with robust fundamental underpinnings.
The effects of inflation are undoubtedly being felt throughout the region. As a net importer of food, the MENA countries are feeling the pressure of rising agricultural prices due to limits on exports imposed by major producers. With money supply expanding strongly, regional governments are attempting various responses (subsidies, wage hikes and the removal/reduction of customs duties/tariffs) to ease mounting inflation. As central bankers continue to work to address the symptoms rather than the source of inflation, GCC currencies in particular will likely remain under significant pressure to appreciate in the medium term. Official comments on this topic are mixed as clear messages from the UAE that no change is forthcoming are countered by messages from officials in Kuwait about imminent changes.
Burgeoning liquidity and the liberalisation of trade barriers are leading regional companies, both family and government owned, increasingly to turn to equity markets to fund their future expansion. Looking ahead, the diversity of companies tapping into the primary market appears encouraging, with the dominant sectors of financial services, energy and real estate accompanied by companies from construction, transport, telecoms, education and media.
Saudi Arabia
After a disappointing first-quarter performance, Saudi equities rebounded sharply in April, gaining almost 12% over the month. This was just enough to cover the loss from the previous month, but the Saudi market remains the worst performing market in the region, with a year-to-date loss of over 8%. Record high oil prices are an obvious source of support for the market, but first-quarter corporate earnings, particularly within the banking sector, were reasonable at best. The market traded in the positive zone from the very beginning of April, with volumes building up throughout the month and 38% more shares changing hands than in March. The banking sector performed well, with SAMBA and SABB gaining 31% and 27%, respectively, during the month while telecom play Saudi MTC gained more than 42%. Also in April, the US$2.8 billion IPO of Al INMA Bank attracted investor attention and was oversubscribed by 1.74 times. At current valuation levels of 21 times trailing 12-month earnings, Saudi equities trade expensively compared with other regional markets, particularly as profit growth, especially within the financial sector, remains relatively weak.
As to corporate results, SAFCO reported that its first-quarter net profit more than doubled to SAR723 million. Yanbu Cement Co. posted a first-quarter net profit of SAR168 million, a growth of 11% over previous year. Al Marai Co. announced that its first-quarter net profit grew by 32% to SAR162.2 million. Riyad Bank declared a modest profit growth of 5.4% to SAR691 million. National Commercial Bank posted a first-quarter net profit of SAR1.785 billion - a 4.9% increase over last year. Al Rajhi Bank reported a 2.1% increase in its first-quarter profit to SAR1.6 billion, while Arab National Bank announced that its first-quarter profit rose by 5% to SAR672 million. Saudi British Bank reported an increase of 23% in its first-quarter profit to SAR757 million and Etihad Etisalat announced that its net profit rose by 30% to SAR326 million. Savola’s first-quarter net profit surged 82% to SAR250.5 million, while market heavyweight SABIC announced a 10% rise in its first-quarter net profit to SAR6.92 billion.
UAE
The UAE equity markets performed well in April, with gains of 8.52% reducing 2008 losses to just over 2%. The surge in investor interest over the month was largely due to record earnings announcements and favorable corporate news releases by major listed companies. Apart from corporate news and events that clearly dominated the market, the listing of IPOs on the struggling DIFX exchange also captivated investor interest. The Depa IPO was three times oversubscribed, but activity on the secondary market was disappointing, with shares trading lower than the listed IPO price on the first day of trading. On a more negative note, the IPO of Future Pipes Industries was withdrawn just days before it was due to list on the DIFX, citing unfavorable conditions in equity markets at present. This recent action only exacerbates the challenges faced by DIFX in attracting new issues and providing sufficient liquidity on the ailing exchange. In addition, there were a few negative headlines surrounding the all-important real estate sector in Dubai. Damac Properties cancelled a development project already fully pre-sold to investors, before reaching a solution while executives at Deyaar were taken into police custody for investigation into financial irregularities and the embezzlement of cash. These negative developments did not deter investor interest in other real estate stocks, which exhibited sizeable gains on the back of record operating results. After a weak first quarter, the UAE stock market - with superior fundamental underpinnings – was able to achieve sizeable gains, and valuations remain very attractive with further gains expected.
UAE - Dubai Financial Market (DFM)
The DFM traded in positive territory right from the start of April, and ended the month 7% higher as considerable growth in first-quarter corporate earnings beat analyst and investor expectations. Trading volumes increased by 34%, with more than six billion shares changing hands over the month. Market heavyweights Emaar and Emirates NBD gained 5.02% and 4.71%, respectively, while Arabtec, Tamweel, Amlak and DFM recorded double-digit price appreciation over the month.
As to corporate results, Amlak Finance announced that its first-quarter net profit surged to AED126 million, up from AED23.8 million a year earlier. DFM announced that its first-quarter net profit tripled to AED315 million. Emaar Properties announced that its net profit for the quarter slumped by 3.6% to AED1.66 billion. Union Properties reported a 70% rise in net profit for the quarter to AED238 million. Tamweel announced that its first-quarter net profit tripled to AED176.34 million. Emirates NBD reported an increase of 36.8% in its net profit for the quarter to AED1.19 billion.
UAE - Abu Dhabi Securities Market (ADSM)
The ADSM gained 9.5% during the month’s trade amid higher trading volumes and improved market breadth. Market favorites Sorouh and Aldar gained more than 16% and 14%, respectively.
As to corporate results, First Gulf Bank announced an increase of 66% in first-quarter net profit to AED675 million. Etisalat announced that its first-quarter net profit rose by 15.5% to AED2.12 billion. Union National Bank reported an increase of 33% in its first-quarter net profit to AED348 million. Sorouh Real Estate announced that its first-quarter net profit tripled to AED361 million. ADCB reported a rise of 10% in its net profit for the quarter to AED517 million. Aldar Properties’ first-quarter net profit more than tripled to AED1.37 billion. NBAD announced that its net profit grew by 45% to AED875 million during the quarter, while RAK Properties’ net profit increased by 11% to AED114.5 million.
Kuwait
Kuwaiti equities provided positive returns for the fifth month in a row, with gains of 2.82% in April. The stock market achieved a milestone, reaching an all-time high on April 21 before giving away some of the gains towards the end of the month. First-quarter results have been strong and in line with expectations, which has helped the market to remain attractively valued at just over 12 times its trailing 12-month earnings. Kuwaiti equities have shown remarkable resilience and continued their consistent performance, with valuations keeping pace with considerable growth in earnings. With political wrangling commonplace in Kuwaiti politics, next month’s parliamentary elections should end the political instability and the ambiguity on policy issues; this should provide investors, who chose to wait for some clarity, further encouragement to return to the stock market.
As to corporate results, National Bank of Kuwait reported that its first-quarter profit increased by 28% to US$309 million. Kuwait Finance House announced its profit for the quarter rose by 43% to US$276.6 million. Commercial Bank of Kuwait reported a first-quarter profit of US$128.5 million, up 21.7% from the same period last year. Al Ahli Bank of Kuwait reported an increase of 21% in its first-quarter net profit to US$86.6 million. Zain announced first-quarter results of US$275.9 million, up 2.7% from a year earlier. KIPCO announced that its first-quarter net profit doubled to US$113 million.
Qatar
Investors enjoyed a stellar month in Qatar, with the index up more than 18% in April, erasing negative returns from the first quarter to become the second best performing market in the region. The bulls took control from the onset, with a more than 110% surge in traded volume over the month. The impressive results announced by blue-chip companies, led by Industries Qatar, fueled positive investor sentiment that drove share prices higher. Currently the market trades at around 16 times its trailing 12-month earnings, which corresponds to the equity market valuation at the start of the year. Qatar has launched an impressive domestic investment programme aimed at developing its non-hydrocarbon sectors, such as manufacturing, trade, transport, financial services and tourism. An estimated US$142 billion worth of projects are planned over the next six years to continue this diversification strategy. As per recently published data from the International Monetary Fund, Qatar’s nominal gross domestic product grew by 25% to US$66 billion and is expected to cross US$100 billion by 2013. This scale of economic expansion will likely support corporate earnings growth over the medium term. The predominant concern remains inflation, estimated at 13.7% according to the latest figures, but pressures should moderate as additional housing supply will serve to stave off rising rents by the end of the year.
As to corporate results, Industries Qatar’s first-quarter profit more than doubled to 1.9 billion Qatari riyals (US$522.1 million), from QAR893 million in the same period a year earlier. Qatar National Bank declared that its net profit for the quarter rose by 40.5% to QAR917.3 million. Nakilat declared that its first-quarter net profit increased by 72% to QAR39.5 million. Qatar Navigation announced that its net profit for the quarter almost doubled to QAR212.8 million. Qatar Fuel reported a rise of 35.1% in its quarterly net profit to QAR170.3 million. Qatar International Islamic Bank announced its net profit for the quarter rose by 28.3% to QAR135.4 million, while Commercial Bank’s net profit rose by 64% to QAR436.4 million.
Egypt
The Egyptian equity market extended gains from March with a 4.09% return over the month, making it the third positive close in a row. The market exhibited sideways movement initially before catching up with the other regional markets by the end of the month. The trading volumes remained unchanged in comparison with last month, with few exceptional days in between. The market breadth was negative as losing stocks outnumbered gaining stocks; however, market heavyweights Orascom Telecom and Orascom Construction supported the index, with gains on the month of 9.82% and 7.56%, respectively. Valuations have become more attractive as the average market price-to-earnings ratio dipped to below 14 times levels due to higher-than-expected profit growth in blue-chip stocks. The macroeconomic situation in Egypt seems comfortable, with real GDP growth of around 7% reducing the government budget deficit and external debt as a percentage of GDP. Less comforting are the socioeconomic effects of inflation, which is running at around 9% and social unrest will likely continue. Signs are that considerable government efforts are being made to address these social issues, which should largely be contained in the months ahead.
