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Region’s stock markets poised to rebound as investors return

Monday, Jan 02, 2012

Gulf News

Abu Dhabi: Equity markets in the Gulf Cooperation Council (GCC) countries and the wider Middle East and North Africa (Mena) region are widely anticipated to reverse their sharp decline in 2012 on the back of attractive valuations that several of their stocks offer, a catalyst which could attract strong capital inflows from foreign institution investors looking for higher returns on investment, analysts say.

High global oil prices at nearly $100 (Dh367) a barrel, which is the mainstay of the region’s exports and greater political stability within the region offer the much-needed support that foreign institutional investors might be looking at to deploy their money here.

By latest estimates, the regional markets lost nearly $50 billion in market capitalisation last year as investors fled following the turmoil brought on by public uprisings in Egypt, Libya, Tunisia, Syria and Yemen.

“There was a double-digit drop in several stocks listed on the GCC markets in 2011. I expect 2012 to be a much better year than 2011 and 2010 for the region’s markets as more international investors are likely to allocate their funds in the region. There’s also now a greater political stability in the region and Saudi Arabia is likely to open its market to international investors in the first quarter of 2012,” Mousa Haddad, Head Trader with National Bank of Abu Dhabi Asset Management, told Gulf News.

Haddad said with econ-omic growth slowing in emerging markets such as China and India and uncertainty clouding investor sentiments in Europe and the US, the region’s stock markets offer good value for the long-term global investor.

As well, with Qatar and UAE stocks likely to be listed on the MSCI by June 2012, there is likely to be a surge in investor confidence levels, he added.

“Qatar is also planning to list its bonds in the market, which would attract more liquidity,” said Haddad.

Chahir Hosni, sales manager with EFG-Hermes, told Gulf News it was a tough 2011 for most markets within the region, with Egypt being affected the most. He said the regional markets have been performing poorly over the last three years partly due to negative global investor sentiments, but mainly due to local developments.

Outflows

Hosni said 2011 saw significant capital outflows from equities into other asset classes. During the year, the UAE markets in Dubai and Abu Dhabi were negatively impacted by the slowdown in the real estate market, Hosni said.

“I think 2012 will see an improvement in the performance of the regional markets, overall. We are past the worst point. Dubai’s debt situation is now a lot clearer and key segments of the economy such as retail and real estate have been improving,” Hosni said. “A lot of money is sitting on the sidelines waiting for the right opportunity to enter the equity markets. As soon as the global investor sentiment improves, there will be fresh money inflows into the region’s markets,” he added.

As well, Hosni said, in Egypt, where the market was severely hit in 2011 due to a public uprising against Hosni Mubarak’s regime, steady steps have been taken to restore political stability.

Hosni also said global oil prices, which are expected to remain at elevated levels during 2012 despite fears of an all new financial crisis worldwide, would enable oil exporting countries of the region to boost spending in key infrastructure projects.

Haddad said given the dirham’s peg to the US dollar, the UAE markets next year would likely be less volatile, taking into account the dollar’s recent appreciation against major global currencies. Should this trend continue, it would mean investments into its equity markets would be less risky for overseas investors, according to Haddad.

However, despite analysts’ optimism with regard to the regional markets’ performance next year, concerns remain about the global economy losing its growth momentum, going into 2012.

New crisis

Experts fear a new global financial crisis is in the making and could unleash its fury as early as 2012, a year when bond rollovers in the US, Asia and Europe worth a combined $6.5 trillion are due, experts warn.

They say the Eurozone sovereign debt crisis has entered a critical new phase with France’s prized AAA rating being downgraded by Fitch and the spectre of more sovereign downgrades looking imminent early this year.

As borrowing costs increase in the euro area amid slowing economic growth, the 17-member currency union teeters on the brink of collapse. Analysts fear there will be catastrophic consequences for the global economy should the Eurozone break up.

So far, the efforts to tackle the Eurozone crisis have been half-hearted at best, leaving more questions than answers. The worst-case scenario in Europe includes sovereign debt defaults, probably starting with Greece early this year.

Should this happen, the most natural outcome would be a frantic sell-off in riskier assets worldwide. The spectre of a global inter-bank crisis, wherein banks would curb or entirely stop lending to each other, also looks a possibility

“[Euro] member states need to repay €1.1 trillion [Dh4.75 trillion] of debt in 2012, the bulk of it in the first six months. The Eurozone banks also have $665 billion of debt coming due in the first half of 2012. Eurozone leaders have proposed using the European Central Bank [ECB], the European Financial Stability Fund [EFSF], the European Stability mechanism [EMS] and they are now going around the houses to use the IMF,” said Gary Dugan, Chief Investment Officer — Private Banking at Emirates NBD, in a recent research note.

By Himendra Mohan Kumar, Staff Reporter

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