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@refinitiv.com.

1) What is the biggest factor impacting GCC stock markets at the moment?

Biggest factors are the escalating trade tensions in the global scene, especially between the US and China, which will have its effect on all markets – including the GCC. This is in addition to investors keeping a close eye on the oil price and its movement given OPEC’s decision to cut production coupled with the FED potentially raising interest rates for the fourth time this year.

2) What is the biggest risk or threat in the coming weeks?

The major threat is relating to the risk of a global economic slowdown as a result of the US-China tensions. OPEC members’ compliance with the oil production cuts is also essential to maintain oil prices at levels required by GCC states to balance their budgets.

3) What is the general outlook for the healthcare sector in the GCC?

GCC has one of the youngest populations worldwide along with increasing life expectancy; those two factors combined are the main drivers behind the general healthcare sector in the region. Additionally, we are witnessing consolidation across the healthcare value chain which we expect to continue in the future in order to drive efficiency and unlock shareholder value.

4) What sort of return on investment private sector investors see in the healthcare sector?

As a defensive sector, healthcare returns are reasonable and differ greatly between asset types. Generally, we are looking at ROI of 20 percent on healthcare assets in current market conditions.

5) What is your view for the banking sector in the UAE?

Despite the decline in oil prices, the UAE’s banking sector has remained resilient. UAE banks continue to make several efforts to enhance the banking system including moving towards a risk-based supervisory framework, implementing more comprehensive stress testing and macro prudential framework, along with enhancing banking regulation in line with international standards.

A positive outlook is expected for the UAE banking sector on the back of improving oil prices coupled with sufficient bank liquidity and efforts of shifting to a well-diversified economy leading to a slight projected growth in loans along with an increase in net profit at the back of improving asset quality.

6) What is your view for the banking sector in Saudi Arabia?

The Saudi banking sector is very well positioned to take advantage of the expected increasing interest rate environment given the asset/liability mismatch. We maintain our selective positive view on the Saudi Arabian market in general and the Saudi banking sector in specific.

7) To which markets do you expect to increase/decrease your equity allocation in the near future (3 months)

We expect to selectively increase allocation to key sectors in the UAE, Saudi, and Egyptian markets. The Saudi and Egyptian markets have been undergoing many reforms and updating key regulations required to boost investor confidence and increase foreign investments in the capital markets. UAE fundamentals remain strong with a current opportunity to take advantage of current market prices.

8) What factors affect the healthcare sector globally and the GCC particularly?

Key factors affecting healthcare are demographics, government regulations, and technological advancements and scientific discoveries. The healthcare market is rapidly evolving with daily developments.

9) Are there any challenges/barriers to entering the healthcare market?

Yes, of course. Unlike many other sectors, healthcare is a very technical sector that deals with peoples’ lives and well-being. The margin of error in healthcare is very slim. Moreover, GCC governments have been keen and are doing a very thorough job in maintaining high industry standards to ensure quality healthcare for citizens and residents.

10) Is raising funding a challenge for the healthcare sector?

The funding requirements in general in the market did get affected by the decrease in overall liquidity; however key defensive sectors such as healthcare, education, and logistics remain attractive sectors for investors in the private sector.

11) If you were to pick one regional stock that you think will outperform over the next six months, which one would it be (and why)?

UAE markets have been under pressure for a while now, creating very promising entry points supported by attractive multiplies relative to their peers, and strong fundamentals for stocks in the real state and the banking sector. Together with the new government initiatives aimed at making the Emirates one of the region’s most business-friendly economies, UAE markets will be triggering a lot of investors’ eyes in the coming period.

12) How would the EM inclusion for Saudi Arabia help the region?

Ever since Saudi Arabia was added to the MSCI’s watch list in June 2017, the country’s Capital Markets Authority and Tadawul have continued to make substantial modifications to its equity market infrastructure and accessibility. Initiatives  include updates to its independent custody model by providing an increased flexibility in trading limits for clients, the key aim of which was to enhance qualified foreign investors to access the market.

With Saudi Arabia’s upgrade to emerging market status by FTSE in March earlier this year, analysts predicted an inflow of approximately USD 4.4bn. However, Saudi’s inclusion into MSCI Emerging Market Index will potentially spur an approximated surge of USD 7bn, constituting 2.7% of the index.

(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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