GCC markets sentiment holds up well, despite uncertainty

February 2, 2014 2:21 pm

Report by Invest AD highlights equities and fixed income in the Mena region 


GCC markets have started the year on a high note when it comes to equities, according to financial services company, Invest AD. Sentiment continues to hold up,despite downward pressure on global emerging markets,due to the region’s robust macro-economic fundamentals.

The firm states that investors in Saudi Arabia should be encouraged by the government’s budget for 2014, because it reveals a clear intention to stimulate the economy through increased investment spending of $67 billion. This will not only support economic growth, but also provide further opportunities to the private sector through a number of measures to increase citizen employment.

The Saudi petrochemical sector is one to watch, with a steady recovery in the world’s developed economies likely to result in price rises for key products throughout the year.

In the UAE, the economy is expected to continue to strengthen, due to Dubai’s successful bid to host the World Expo 2020, coupled with the Abu Dhabi Government’s plans to increase investment spending by $90 billion over the next five years.

Continuing foreign inflows into Qatar is also a positive driver for investors, ahead of the MSCI upgrade in June, and the expected high-dividend yields in the country.

As for fixed income, the Middle East region’s credit markets have witnessed strong buying momentum since the beginning of the year, with money being put to work by regional and international investors.

The absence of any new issuance also helped to keep sentiment buoyant. The first regional issuer this year is scheduled to be KIPCO, which was on a roadshow for a US dollar issuance at the end of January.

Regional banks, private banks, international accounts and other long-term investors are providing demand for bonds in every segment of the regional credit curve. While banks have focused on the shorter end of the curve to put their liquidities to work, international investors, including pension funds and insurance companies, concentrated more on the longer end of the curve to enhance their returns. Similarly, private banks paid attention to the high-yield segment and long-dated subordinated financial names to provide higher returns to their clients. Overall, market yields have compressed between 30 pointsand35 points across the curve over the past few trading sessions.