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Weak emerging markets (EM) performance weighed on investor sentiment during the month of September, with the MSCI Emerging Markets index down more than 9 percent since the start of the year. Markets in the Gulf Cooperation Council (GCC) area started the month mainly lower, but recovered much of the declines in the second half of September as a surge in oil prices helped most Gulf bourses to close out the month in positive territory.
Egypt
The Egyptian market was the worst performer against its peers in the region, dropping 8.7 percent during the month of September. At one stage this year, the Egyptian Exchange was the strongest performer in the region, but it is now 3 percent lower in the year-to-date, dragged down by the sharp September drop.
Concerns about the instability of emerging markets hit investor sentiment in Egypt. Currency weakness in countries like Turkey also raised fears about the Egyptian pound, as Egypt is not protected by a currency peg.
Analysts at EFG Hermes remain positive on the Egyptian index’s outlook in the medium and long-term, but cited many challenges.
“Despite the persistent high interest rate environment, ongoing Emerging Markets uncertainties, we remain confident that fundamentals will prevail in the medium/long-term. While the market could continue to trade sideways in the short-term,” Mohamad Al-Hajj, vice-president and head of MENA strategy at EFG Hermes told Zawya by email.
“We cannot justify a change in our view on Egyptian equities given current valuations, EPS growth, and the medium-term outlook for local interest rates.”
A Reuters poll of 13 leading fund managers conducted at the end of September showed that 31 percent of participants expect to cut allocations to Egypt in the next three months and 8 percent to raise them, the most negative balance since February 2017.
Saudi Arabia
Fears of supply tightening, as a result of sanctions set to be imposed on Iran by the U.S. from November, has pushed oil prices to levels not seen for four years, with Brent Crude prices hovering near $82 by the end of September.
The rise in oil prices has boosted the Saudi index, especially petrochemical shares (Read more here).
“Higher oil prices are supportive to Saudi Equities as the market prepares to join MSCI and FTSE EM indices, taking in $16 billion worth of passive inflows over March 2019 – March 2020,” Al-Hajj told Zawya.
“MSCI Saudi Arabia is down 2 percent since 20 June 2018 (when MSCI upgraded the market to EM) with 12-month forward price to earnings (P/E (x)) multiple contracting from 14.4x to 13.7x. This is in contrast to the trend we saw in the UAE, Qatar, and Pakistan, where multiples expanded 63 percent, 49 percent, and 18 percent respectively, from announcement to implementation, for total returns of 98 percent, 54 percent, and 28 percent respectively,” he added.
“We expect Saudi Arabia to start trading higher as we get closer to the index events, and higher oil prices should provide a tailwind to the trade,”
Nishit Lakhotia, head of research at SICO told Zawya.
“September was a month of two halves in Saudi, with (the) market touching a six-month low mid-September, before a sharp bounce back in the last two weeks and ending the month marginally higher.“
“What we noticed is that selling pressure from domestic institutional DPMs (discretionary portfolio managers) abated in the second half, while domestic corporates continued to be on the buying side. Higher oil prices are also helping revive sentiments in the Saudi index, while there have been visible signs that projects execution is picking up pace in the second half,” he added.
“We expect all eyes to be on the budgetary spending and then again on MSCI beneficiaries towards the end of the year. However, third quarter results will unlikely be a trigger for the markets but investors will start positioning now for the year 2019 and accordingly I expect markets to trend higher in the fourth quarter,” Lakhotia said.
United Arab Emirates
Dubai’s index ended the month of September 0.18 percent lower, while Abu Dhabi’s index dropped 1.03 percent.
“Dubai’s market also witnessed recovery towards the last week of September, ending almost flat after declining close to 3.5 percent in the initial three weeks,” Lakhotia said.
“Emirates NBD led recovery as investors and traders alike may be betting on foreign limit increase. The stock, anyway, has been under severe pressure and provides good entry levels for fundamental investors as well,”
Emirates NBD announced in March in a statement to the exchange that its AGM had approved increasing the foreign ownership limit from 5 to 20 percent. On September 19, the bank issued another statement saying that “the process of fixing a time limit for the implementation of the General Assembly’s Resolution to increase the foreign ownership rate to 20 percent is subject to the Bank’s Board of Directors”.
Lakhotia said: “We expect Dubai’s market to also trend higher, but overall investors need to focus on stock specific dividend plays, that should ideally perform better in the fourth quarter,”.
The banking sector in the UAE continued to be one of the best performing sectors in the country, outperforming local markets, but bank performance alone in September did not improve enough to push Dubai and Abu Dhabi’s indices into positive territory (Read more here).
“We expect stabilisation in the financial profiles on UAE banks in 2019 given the expected increase in economic growth, backed by an acceleration in government spending, normalisation in liquidity conditions and gradual margin expansion in a rising interest rate environment,” Suha Urgan, director of financial institutions ratings at S&P Global Ratings, told Zawya by email.
“Overall, we expect UAE banks profitability to see low single digit growth in 2019. Real estate will remain a source of new NPL formation for UAE banks as we see an ongoing mismatch in supply and demand dynamics in the near term,” Urgan added.
“Nevertheless, UAE banks have adequate cushions to absorb further asset quality deterioration based on sufficient loan loss reserves built since 2010, which now also benefits from the adoption of IFRS 9 in 2018.”
Kuwait
Kuwait’s premier market index ended the month 1.56 percent higher, as the market joined the FTSE Russell Emerging Market Index during the last week of September. (Read more here)
Interest in the market increased as trading volumes surged on the FTSE index addition.
“Trading during the month was boosted by the FTSE upgrade. The day before the upgrade, on 20 September 18, the exchange recorded 167.3 million Kuwaiti dinars ($551 million) worth of trades, the highest daily value traded since May 2013. Volume during the day was also the highest in 17 months at 345.6 million,” a monthly report on GCC markets issued by Kuwait Asset Management Company (KAMCO) on Monday stated.
“For the full month, total value traded was up almost 50 percent to reach 523.8 million dinars, as compared to 356.5 million dinars during August-18,” it said.
“The monthly gainers chart was topped by Energy House, recording a gain of 36.7 percent. The surge came after the company disclosed that one of (its) investments, in which it owns 13.77 percent, was in sale negotiations with a Chinese company,” the report added.
Qatar
Qatar’s index ended the month 0.74 percent lower with 26 companies dropping and 18 companies adding gains.
“In terms of trading activity, QNB topped the monthly value traded chart with 832 million Qatari riyals ($228.57 million) worth of shares traded, followed by Industries Qatar and Barwa Real Estate recording 374 million riyals and 371 million riyals in monthly value traded,” the KAMCO report added.
“In terms of volumes traded, Investment Holding Group led all stocks with traded volumes of 12.8 million shares.”
Elsewhere in the region, Bahrain’s index was mainly flat and Oman’s index gained 2.82 percent.
(Reporting by Gerard Aoun; Editing by Michael Fahy)
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