Risks include escalating tensions in the global scene, which will have its effect on all markets - including MENA - keeping investors on the sidelines in their respective markets. Emerging markets will also remain at risk of a fall caused by country-specific shocks, coupled with the U.S. Federal Reserve raising interest rates.
Also, investors will be keeping a close eye on the oil price and its movement, ahead of the U.S. sanctions on Iran, which will kick in from November4. This will be followed by an OPEC meeting to be held in Vienna on the 3rd of December which, in turn, should provide further clarity on the oil situation.
2) What are your expectations for Q3 earnings in the region?
The increase in oil prices will support the economic recovery in the region and will be most probably reflected in 2018 results. This fiscal reforms taken by governments in the region should also contribute to growth in earnings.
3) What is your view for the U.S. dollar and gold prices?
Higher interest rates translate into a boost to the U.S. dollar. They also put pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion. Given that the Fed is seeking to pursue a tighter monetary policy, a further increase in interest rates is expected in December amid steady economic growth and a strong jobs market.
4) If you were to pick a regional sector, which one would you pick and why?
Every sector has its own story in each country and we can’t generalise. For the GCC economies and Egypt, the macro picture, with the structural reforms taking place by many governments, coupled with economic diversification, are creating a more appealing investment environment for foreign investments. Alongside the recent increase in oil prices, we should see a quicker than usual impact on almost all sectors relative to 2017’s subdued performance.
5) What is your view for UAE markets?
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, which has started to materialize in the stock markets’ performance in the past couple of days.
6) What do you think of the news of the latest merger rounds between banks in the UAE?
The main drive for financial institutions to merge is to form solid synergies and to create stronger entities, while seeking to maximise profit margins by the reduction in their cost base, making them more effective and efficient at the same time. The merger is completely in line with the emirate’s move towards financial consolidation and creating a more competitive financial institutions in the region. The (ADCB/Al Hilal/UNB) merger is expected to generate significant cost synergies, providing a stronger new entity that is expected to rank in fifth place among its GCC peers, with assets standing at almost $110 bn. This is in addition to the fact that the local banking sector is currently trading at very attractive levels on local equity markets, and are backed by solid fundamentals.
7) What is your view for the Saudi market?
Saudi Arabia has been going under so many reforms in a move towards its 2030 vision, and it is paying off. Last Sunday, the Saudi Finance minister announced in a press release the pre-budget statement as a step in the country’s new strategy of being more transparent. The pre-budget release shows a revision for fiscal budget estimates and economic forecasts as well. Authorities are relying more on the increase in oil prices, with public spending expected to reach 1.106 trillion riyals ($295 billion) in 2019, which is equivalent to almost 100 billion riyals more than the government had projected last year. However, it’s worth mentioning that on its way to these reforms, the kingdom is facing some challenges, with the private sector bearing the impact of expat levies and Saudization. On the stock market front, the Saudi exchange has been introducing a lot of effective reforms to its systems as part of the steps being taken by the biggest of the Arab economies towards achieving the the financial sector development objectives under the Vision 2030 programme. The introduction of exchange-traded derivatives to the Saudi market, is another step towards this vision, which will help in improving market efficiency, providing risk management tools to investors and giving more insight into future prices.
8) What is your view for the Egyptian market
Since 2011, the Egyptian economy has witnessed significant events that shook it off course. However, the economy was able to overcome all of these difficulties and took so many positive steps towards the reforms it needs. November 2016 marked a major milestone for the economy, with the currency devaluation decision taken by the country.
Since then, the country was able to secure a three-year IMF support package worth $12 billion predicated on a package of macroeconomic policies and structural reforms. Also, Moody’s upgraded its outlook on Egypt to positive and reaffirmed long-term issuer rating at B3, saying the decision reflects improvements in the economic and business environment as a result of the ongoing economic reform programme. Reforms are still taking place and their effects are being shown, leading the economy to outperform its peers.
9) What is your view for Kuwait’s stock market?
The Kuwaiti stock market is expected to rebound. After the FTSE inclusion, the passive inflows into the Kuwaiti market are expected to reach $1 billion in two phases. This is in addition to the expected $2 billion from the MSCI EM inclusion, coupled with rising oil prices that will have an effect on the stock market’s performance for the coming period as well.
10) What is your view for oil prices?
The global macro outlook and the pressure on emerging markets, the impact of sanctions on Iran and rising trade uncertainties are all potential risks to oil demand growth, consequently leading to a revised 2018 demand-growth outlook to 1.2m barrels per day, from 1.4m previously.
Oil prices are expected to average $70 per barrel in both 2018 and 2019, however, in the coming weeks, investors are expected to keep a close eye on the oil price and its movement ahead of the U.S. sanctions against Iran.
(Editing by Gerard Aoun and Michael Fahy)
Any opinions expressed here are the author’s own.
If you would like to participate in the Zawya Markets Weekly Q&A please email firstname.lastname@example.org.
Our Standards: The Thomson Reuters Trust Principles
Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.
© ZAWYA 2018