GCC equity markets set to remain volatile in near term

MANAMA: With GCC equity markets seen remaining volatile in the near term, Kamco Invest has indicated its preference for defensive sectors.

Such products and services have a relatively inelastic demand combined with higher domestic revenue contribution, said the subsidiary of Kuwait’s Kipco Group in its latest report.

The most preferred (defensive) sectors are: utilities, telecoms, consumer, education, staple food producers and healthcare service providers.

Research by Kamco shows electric power, water and cooling related utilities companies will continue to see stable base demand, especially as residential demand and related revenue visibility will remain stable with the onset of summer.

Kamco is partial to utility stocks with high dividend yield profiles.

Telecom operators with strong domestic customer base, domestic revenue contribution and those that are less exposed to intermittent demand from inbound tourism related data and roaming revenues would be relatively unaffected.

However, stocks of telecoms that have incurred additional capex for large-scale government projects that could be potentially delayed could underperform their peers.

Within the consumer sector, Kamco is positive on education as fees are paid upfront, and with near-term temporary shutdowns, institutions are likely to remain flexible and should catch up with the delivery of their educational services via online tutoring and classes.

With travel likely to be limited, staple food producers are unlikely to witness lower demand, and on the other hand could potentially witness some marginal frontloaded demand on higher stocking of staple foods.

Food producers with products having access to strong online networks will also be preferred.

Residents are likely to be more cautious and travel less in the coming summer holidays on fears of travel bans, while restrictions and a large spike in Covid-19 cases could potentially lead the government healthcare sector to utilise private healthcare service providers to curb the spread.

The investment firm has listed airlines, logistics, consumer discretionary and real estate, construction, hospitality and leisure as its least preferred sectors.

Lower passengers and yields will weigh on airline stocks in the GCC as aviation traffic slows down globally.

Listed ground services and travel related catering stocks will also underperform.

Cross-border logistics names will witness pressure from transportation restrictions and delays. However, warehousing and domestic express related revenues could remain more stable.

Consumer discretionary companies will be weighed down by the outlook of both lower demand and supply chain shocks.

Kamco is underweight on real estate and construction names which are exposed to delays, cancellation of projects and supply chain risks of raw materials.

Real estate companies with hospitality segments in their portfolio will likely underperform from lower occupancy rates and price competition on ADRs in order to secure occupancy rates.

Mall operators will be impacted by lower footfalls, negotiation from tenants for lower turnover rents or potential lowering rents to support retailers.

Retailers will look at online channels to secure sales.

REITs with higher residential contribution are likely to be less affected than peers, says Kamco.

avinash@gdn.com.bh

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