Market mover: Higher oil prices to swell Gulf equities' earnings growth

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An investor walks past a screen displaying stock information at the Saudi Stock Exchange (Tadawul) in Riyadh, Saudi Arabia June 29, 2016.Image used for illustrative purpose.

An investor walks past a screen displaying stock information at the Saudi Stock Exchange (Tadawul) in Riyadh, Saudi Arabia June 29, 2016.Image used for illustrative purpose.

REUTERS/Faisal Al Nasser

Firms listed on Gulf equities markets are likely to grow net profits by around 3 percent year-on-year (and by 12 percent quarter-on-quarter) in the first quarter of 2018, led by a stronger petrochemicals sector, according to a new analysts' note.

The note, published by Bahrain-based Securities & Investment Company on Sunday, states that petrochemicals firms' earnings are likely to increase by 10 percent year-on-year, led by higher product prices. Revenue of the 11 listed petchems firms is likely to grow by around 13 percent year-on-year as a result, it added.

Profits in the banking sector are also likely to edge up by 2 percent year-on-year, according to SICO's forecast. Although the balance sheets of Saudi Arabia's banks are likely to be weakened as a result of higher tax liabilities imposed by the kingdom's tax authority in February, the net interest margin earned by its banks is set to improve following last month's increase in interest rates.

Banks in the United Arab Emirates (UAE) are also likely to report stronger net interest income, but they are also likely to experience higher operating costs, while Qatar's banks have managed to maintain stable margins while improving balance sheet growth, which should lead to strong growth in net interest income, SICO's note predicts.

It also forecast strong revenue growth (up 27 percent) in the real estate and construction sector, buoyed by higher revenue recognition of properties under development by the UAE's Emaar Properties and Aldar Properties, although net income is predicted to fall slightly (by 2 percent), as weaker macroeconomic conditions affect both retail and hospitality businesses run by developers.

A separate report published by Dubai-based Al Masah Capital yesterday stated that only three out of the region's seven indices made gains last week, with the Dubai Financial Market being the biggest faller (dropping by 1.3 percent).

The Egyptian Exchange was the biggest gainer, increasing by 2.3 percent during the week, followed by Saudi Arabia, which gained 0.4 percent.

Although the inclusion of Saudi Arabia's stock market by index compiler FTSE Russell into its emerging markets index was the main headline for Gulf equity markets last week, Al Masah Capital's report said "the news was already priced in by investors so there were no major surprises" in terms of stock price gains.

In another boost for Saudi Arabia's stock market, the kingdom's Ministry of Finance announced yesterday that the country's Capital Markets Authority had approved a plan to list and trade all local currency debt instruments (both bonds and sukuk) issued by the government onto Tadawul.

As a result, 45 bonds and sukuk with a total value of over 204 billion Saudi riyals ($54.5 billion) will now be listed on the exchange. In a statement published on its website on Sunday, the president of the kingdom's Debt Management Office, Fahad Al Saif, said: "The listing of government debt instruments on Tadawul is a key pillar of the Saudi government's strategy to make the kingdom a global investment powerhouse."

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(Writing by Michael Fahy; Editing by Shane McGinley)
(michael.fahy@thomsonreuters.com)

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