Welcome to Zawya Markets. Each Sunday we will be featuring an interview with a different analyst or markets expert from around the region.

If you would like to participate please email gerard.aoun@thomsonreuters.com.

1) What is your view for oil prices?
OPEC recently agreed to increase oil production. Normally, we would consider that as a positive move (especially with the sanctions imposed on Iran and Venezuela) but the increase in production came along at the same time as when the United States is considering utilising its reserves to save on costs (meaning lower imports).

We believe that the current scenarios are the result of inter-political agreements among countries and we should probably see oil trading sideways to stabilize at $70-71 for the short-term.

2) To which markets do you expect to increase/decrease your equity allocation in the near future (3 months)
Given current market conditions across the region, we see a lot of interest in the Saudi and Egyptian markets – they are both outperforming and we see potential there in the different sectors, especially the banking and petrochemical sectors in Saudi Arabia.

United Arab Emirates stock markets have been lagging lately and this is not something new - investors have lost interest and unless we see major changes related to disclosures and transparency, investors will not have confidence to re-invest locally.

3) What is your view for GCC markets and Egypt?
Saudi and Qatar have lately been seeing a lot of inflows from investors and this is related to the stability across the markets, yet the same is not witnessed in the UAE markets. On another note, Kuwait has been attracting investors due to the mere fact that the market is currently being assessed for MSCI and FTSE inclusions next year. Egyptian markets, following all of their previous challenges, have proven lately to be picking up and attracting local and foreign investors to invest in fast-growing sectors across their markets.

4) What is the biggest factor impacting GCC stock markets at the moment?
GCC stocks have always been, and still are, impacted by oil prices and this is due to the amount of production linked to the GCC.

Increasing production should be a positive catalyst in the region, but it is always linked to the international oil trade.

5) What is the biggest risk or threat in the coming weeks?
Trade tensions have surely affected business across the region, as well as globally, yet we need to reassess their impact on the UAE following the visit of the Chinese president, which resulted in several agreements.

Such relations can provide a positive catalyst that would attract investors back into the local markets, but until this is achieved we still see investors focused on the Saudi market which by all means outperformed the rest of the GCC markets.

6) How have Q2 earnings been so far across the region?
Real estate companies will most probably report humble figures and this comes in line with the low interest in the real estate sector and properties at this point in time.

We have seen reports that Emaar will sell non-core assets in an attempt probably to increase liquidity to finalise ongoing projects and handover.

As per the company, they are aiming at focusing on their hospitality segment more than any other.

Earnings in Saudi have been good. This will keep attracting investors and probably with all the positive news coming out, we expect earnings to live up to expectations.

7) What are your views for Drake and Scull?
There is lack of transparency when it comes to the previous transactions and the decline in the ownership percentages and this sort-of created discomfort among investors. Despite that, the company could have potential to come up with profitable deals which will require proper disclosures to re-attract investors into the name.

We still see that there is value in the name post the strategic investment by Tabarak but the markets aren’t yet helping in reflecting the same.

8) What is your view on listed companies’ exposure to Abraaj and how it might impact UAE markets?
We still expect exposed banks to Abraaj to account for the provisions, but we do not see that this will impact their Q3 earnings. The main concern with Abraaj is no longer related to the exposure, but rather corporate governance which has created a lack of confidence in the financial services sector in the UAE.

9) What is your view for the real estate sector in the UAE?
We are currently seeing a lag in the real estate sector in the UAE and this is due to the oversupply of units across the UAE when demand on the same has been way lower.

10) What impact would the Saudi Aramco buying a stake in SABIC have on the Saudi market overall, and the petrochemical sector specifically?
Aramco buying PIF’s stake in SABIC brings up a lot of questions on the reasons behind such a deal, yet given the size and weight of both companies this could be a door to many more collaborations among companies to produce bigger companies (financial and production-wise).

The deal could attract investors into the markets and it has already started attracting banks internationally for the funding of the deal.

We do not see that the transaction could delay the listing of Aramco – both trades are not interrelated (yet) unless further disclosures are made by the management of both companies and the regulators.

(Editing by Gerard Aoun and Shane McGinley)

Any opinions expressed here are the author’s own.

If you would like to participate in the Zawya Markets Weekly Q&A please email gerard.aoun@thomsonreuters.com.

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