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MR04072012
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Kuwait Financial Centre “Markaz” R E S E A R C H
World Markets Get Something to Cheer GCC markets still in red
June 2012 Returns (%)
S&P 500 MSCI World MSCI EM S&P GCC
3.96 4.93 3.43 -2.91
The Euro Summit at the end of June 2012 was the major reason for most
world indices ending on a positive note. After 13.5 hours of talks ending at
4:30 a.m. in Brussels on 29th June, leaders of the 17 euro nations dropped
the requirement that governments get preferred-creditor status on crisis
loans to Spain‟s banks and opened the door to recapitalizing banks directly
with bailout funds once Europe sets up a single banking supervisor. They
also discussed reducing the market pressure on Italy and Spain by allowing
them to access rescue loans without relinquishing control of their
economies. This news boosted the financial markets worldwide albeit late in
the month.
The MSCI world index was up 4.9% for the month and almost all major
indices ended on a positive note. Frontier markets and Shanghai were
exceptions posting losses of 0.8% and 6.2% respectively. Following the
news of the European Summit the US treasury notes fell for the first time
on June 29th since March 2012. The 10 year Treasury note yield rose 9 basis
points to 1.65%.
However, the month long scenario was not looking so good for the financial
markets. Indian rupee saw its lowest levels and Chinese indices looked
depressed for almost the entire month on the concerns of a manufacturing
slump.
GCC markets were down in June, losing 2.9% after a decrease of 6.1% in
May. Saudi (TASI) was the largest loser shedding 3.80% for the month,
followed by Qatar which lost 3.49%. Dubai has been the best performing
market YTD, with a gain of 7.28%. Kuwait lost 0.60% in June while Bahrain
and Oman both lost 1.13 %.
Volume decreased 36% MoM in the GCC and Value Traded also decreased
24 % to USD 37.5 bn. This was on the back of 25% MoM drop in volumes
and 38% decrease in Value Traded in May. Saudi Arabia, which accounted
for 48% of GCC‟s total volume traded, witnessed a 21% MoM drop in value
traded.
Risk in the GCC (as measured by the Markaz Volatility Index – MVX)
increased 17.57 % in June. Risk in Abu Dhabi increased 146 % for the
month while Oman shed 46%.
Valuations dropped in the GCC as markets suffered two consecutive
monthly losses. Most countries traded near the 8x-12x range.
July 2012
Research Highlights:
Review of global and regional stock markets for the previous
month
Markaz Research is
available on Bloomberg - Type “MRKZ” <Go>
Thomson Research, Reuters Knowledge
Nooz
Zawya Investor ISI Emerging markets
Capital IQ FactSet Research Connect
TheMarkets.com
M.R. Raghu CFA, FRM Head of Research
+965 2224 8280 [email protected]
Madhu Soothanan Senior Research Analyst
+965 2224 8000 Ext: 4603 [email protected]
Animesh Tulsyan Analyst
+965 224 8000 Ext : 4607 [email protected]
Kuwait Financial Centre
S.A.K. “Markaz”
P.O. Box 23444, Safat 13095,
Kuwait Tel: +965 2224 8000
Fax: +965 2242 5828 markaz.com
R E S E A R C H July 2012
Kuwait Financial Centre “Markaz”
2
Global Markets Review – June 2012
For the Global Markets major action was held back till month end when on
29th June after 13½ hours of talk in Brussels leaders of the 17 euro nation‟s
relaxed conditions on emergency loans for Spanish banks and also a
possible help for Italy. Markets worldwide reacted positively to the news
and all major indices made gains during the month end. However the late
surge shown by the Chinese Indices was not sufficient to cover the month
wide loss on concerns of a manufacturing slump. Frontier Markets ended on
a slightly negative note for the month. USA 10 year treasury notes fell for
the first time since March 2012. The 10 year Treasury note yield rose 9
basis points to 1.65%.
CBOE VIX decreased 29% during the month signaling reduced volatility.
The CRB commodity index remained flat at the end of the month.
Figure 1: Monthly Returns – June 2012 (%)
On a YTD basis, India BSE rules the bunch with a gain of 12.8% followed by
S&P 500 which is up 8.3% for the year. Frontier Markets suffered the most
with a loss of 4.7% in 2012.
Figure 2: Price Returns – YTD (%)
The MSCI World index was
gained 4.9% in June mostly because of good news
coming from Euro zone.
On a YTD basis, Sensex
rules the bunch with a gain of 12.8%
R E S E A R C H July 2012
Kuwait Financial Centre “Markaz”
3
World
As mentioned earlier, the major action for the world market was held back
till the conclusion of European Union Summit on 28th June. The positive
news coming from Euro Zone gave a boost to worldwide stock markets
although late in the month. The positive conclusion of summit was of high
importance given the flow of negative news in the market couple of weeks
before the summit. The German chancellor, Angela Merkel had already
denied any possibility of pooling of Eurozone debt; Moody‟s downgraded 28
Spanish banks, yield on Spain‟s 10 year government bond rose as high as
6.96 % and Cyprus became fifth Eurozone country to seek bailout.
During the entire month, the going was not so easy in financial markets.
Initial Public Offerings fell 34% this quarter as compared to last year. IPOs
globally raised USD 41.3 billion. This is worst second quarter since 2009,
data compiled by Bloomberg show. Federal Open Market Committee in its
most recent meeting decided to keep the target range for the federal funds
rate at 0 to 0.25% and currently anticipates exceptionally low levels for the
federal funds rate at least through late 2014.
Meanwhile in India, S&P‟s announcement that India could become the first
of the BRIC economies to lose its investment-grade status, created ripples
in financial market. The Central Bank of China cut the official one year
borrowing rate by 25 basis points to 6.31%. This was the country‟s first rate
cut since the depths of global financial crisis in 2008-09.
Chart Pack – Global Markets
Figure: 3 – Capital Flows to Emerging Economies Figure: 4 - Feds Fund Target Rate
Figure: 5 - US Dollar Figure: 6 -Housing Market Index
The conclusion of European Summit brought
cheers to financial markets worldwide.
R E S E A R C H July 2012
Kuwait Financial Centre “Markaz”
4
Figure: 7 - US Unemployment (Seasonally Adj) Figure: 8 - Crude Brent Oil Prices
Figure: 9 - TED Spread Figure: 10 - CBOE VIX
Figure: 11 - CRB Commodity Index
R E S E A R C H July 2012
Kuwait Financial Centre “Markaz”
5
GCC Markets Review – June 2012 GCC markets were down in June, losing 2.91% after a decrease of 6.1% in
May. All GCC markets except Abu Dhabi were in the red. Saudi (TASI) was the largest loser shedding 3.80% for the month, followed by Qatar which
lost 3.49%. Dubai has been the best performing market YTD, with a gain of
7.28%. Kuwait lost 0.60% in June while Bahrain and Oman both lost 1.13%.
Market Indicators
Indicators M. Cap
(USD Bn) Last Close Monthly
Return % YTD % 2011% P/E TTM
Saudi (TASI) 347 6,710 -3.80 4.55 -3.07 12
Kuwait SE WT.INDEX 102 402 -0.60 -0.82 -16.89 15
Qatar(Doha SM) 93 8,123 -3.49 -7.47 1.12 8
Abu Dhabi (ADI) 75 2,448 0.27 1.89 -11.68 7
Dubai (DFMGI) 46 1,452 -1.33 7.28 -17.00 9
Bahrain (BAX) 17 1,127 -1.13 -1.48 -20.15 8
Oman(Muscat SM) 14 5,690 -1.13 -0.09 -15.69 12
S&P GCC Composite Index 234 93 -2.91 0.97 -8.47 11
Source: Excerpt from Markaz „Daily Morning Brief‟
A study done by Dubai Chamber of Commerce and Industry (DCCI)
combines the latest International Monetary Fund (IMF) data, with the data
from national authorities.1 It indicates that the GCC as a whole will record a
year on year growth of 5.4% in 2012. As such, for the GCC as a whole, IMF
projects that fiscal and current account surpluses will stand at 13.1% and
22.2% of GDP in 2012 respectively.
Saudi Arabia
Fitch Ratings has affirmed SABIC long-term Issuer Default Rating (IDR) at
„A+‟, senior unsecured rating at „A+‟ and Short-term IDR at „F1‟. The
Outlook on the Long-term IDR is Stable. The senior unsecured rating on
Sabic Capital I B.V.‟s guaranteed bonds has also been affirmed at „A+.
SABIC lost 0.53% in June and closed at SAR 93.00
SABIC and affiliates of ExxonMobil announced they will construct a world-
scale specialty elastomers facility at the Al-Jubail Petrochemical Company
(KEMYA) manufacturing joint venture
Jabal Omar Development Company signed a SR5 billion (USD 1.33 billion)
loan agreement with a group of local banks to refinance an upcoming
bridge loan maturity and fund the development of hotels and shops in
Makkah. The company lost 7.26% in June and closed at SAR 17.25.
Saudi Electricity Company (SEC) would buy back its SAR 5bn (USD 1.3bn)
sukuk issued in 2007, in accordance with the terms of that issue. The
company lost 2.27% in June and closed at SAR 12.90
1 Economic Times, gulfbase.com
GCC markets continued its
losses in June, losing 2.91%
SABIC lost 0.53 % in June
and closed at SR 93.00.
R E S E A R C H July 2012
Kuwait Financial Centre “Markaz”
6
United Arab Emirates
The latest DCCI study indicated that the UAE will see a year on year GDP
growth of 4.5% in 2012.
Tamdeed Projects, a part of UAE-based Etisalat Services Holding has signed
a partnership agreement with Panduit Corp. Etisalat closed at AED 9.34
at a gain of 0.11%
A consortium of Arabtec Holding that includes Greek and Turkish firms won
a AED 10.8bn (USD 2.94bn) contract from the Abu Dhabi government to
build a mid-field terminal at its airport. Arabtec closed at AED 2.82 at a
loss of 3.09% in June.
Abu Dhabi National Energy Co. (TAQA) signed a multicurrency project
finance loan of USD 1.4 billion to expand its Jorf Lasfar thermal power plant
in Morocco. TAQA closed at AED 1.21 at a gain of 2.54% in June.
Kuwait
According to the latest IMF article IV report on Kuwait Government
expenditure continued to increase in FY 2011/12 by 8%, reflecting a
significant increase in the wage bill and capital expenditure (about 20%).
The budget expansion was more than offset by the increase in oil revenue
(35%). Kuwait real GDP growth has been forecasted to be 6.6% for 2012.
NBK moved a step closer to a takeover of Kuwait‟s Boubyan Bank, but a
disputed stake held by another bank remains an obstacle to the USD 2.1 billion deal. NBK lost 1.92% in June.
Kamco has said that it booked a profit of KWD 1.5 million (USD 5.35 million)
on the sale of its entire KWD 4 million stake in a non-listed investment. The
shares of the company closed at KWD 0.232 at a loss of 2.52%.
Qatar
The latest DCCI study indicated that the Qatar will record a year on year
growth of 9.4% in 2012. This growth projection is relatively very high when
compared to real GDP growth projection of 6% as per IMF‟s World
Economic Outlook Report (April 2012).
Qatar Telecom offered to pay about KWD 640 million (USD 2.3 billion) to
purchase shares it doesn‟t own in Kuwait‟s National Mobile
Telecommunications Co. Qatar Telecom closed at QAR 103.50 at a
loss of 8.81 in June.
Qatar National Bank is seeking a USD 1.5 billion loan as it seeks additional
capital ahead of a USD 1.85 billion repayment coming due next month. It
closed at QAR 131.30 at a loss of 1.13% in June.
A consortium of Arabtec Holding that includes Greek
and Turkish firms won a USD
2.94bn contract
Volume was down 36% in the
GCC while Value Traded
dropped 24% to USD 37.5 bn
R E S E A R C H July 2012
Kuwait Financial Centre “Markaz”
7
Liquidity, Risk & Valuation Volume decreased 36% MoM in the GCC and Value Traded also decreased
24% to USD 37.5 bn. This was on the back of 25% MoM drop in volumes and
38% decrease in Value Traded in May. Saudi Arabia, which accounted for
48% of GCC‟s total volume traded, witnessed a 21% MoM drop in value
traded.
Risk in the GCC (as measured by the Markaz Volatility Index – MVX)
increased 17.6% in June. Risk in Abu Dhabi increased 146% for the month
while Oman shed 46%.
Valuations dropped in the GCC as markets suffered two consecutive
monthly losses. Most countries traded near the 8x - 12x range.
Chart Pack – GCC
Figure: 12 – Saudi Arabia – PE Band Figure: 13 – Dubai – PE Band
Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon
Figure: 14 – Abu Dhabi – PE Band Figure: 15 - Qatar – PE Band
Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon Figure: 16 - Oman – PE Band Figure: 17 - Bahrain – PE Band
Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon
R E S E A R C H July 2012
Kuwait Financial Centre “Markaz”
8
Figure: 18 – Average Daily Value Traded (USD mn)
Figure: 19 - Risk & Return (June 2005 – June 2012) – GCC Vs Developed & EM
Figure: 20 – Comparative MVX Levels – June 2012
Source: MVX is a proprietary volatility index developed by Markaz Research
EAFE
World USA
EM
GCC Saudi Arabia
Kuwait
UAE
Qatar
Bahrain
Oman
-20%
-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%
10% 15% 20% 25% 30% 35% 40% 45%
CAG
R
Annualized Risk
Source: Thomson Reuters Eikon, Markaz Research
R E S E A R C H July 2012
Kuwait Financial Centre “Markaz”
9
Figure: 21 – US Dollar Returns on GCC Markets
Figure: 22 - Saudi Arabia Repo Rate Figure: 23 - Kuwait Rates
Figure 24: Dubai CDS 5 yr
Jun-12, 359
402
0
100
200
300
400
500
600
700
800
900
1000
Fe
b-0
8
Ma
y-0
8
Au
g-0
8
No
v-0
8
Fe
b-0
9
Ma
y-0
9
Au
g-0
9
No
v-0
9
Fe
b-1
0
Ma
y-1
0
Au
g-1
0
No
v-1
0
Fe
b-1
1
Ma
y-1
1
Au
g-1
1
No
v-1
1
Fe
b-1
2
Ma
y-1
2
Bp
s
Dubai CDS
Historical Average
Source: Thomson Reuters Eikon
R E S E A R C H July 2012
Kuwait Financial Centre “Markaz”
10
Data Tables – GCC Data Table: 1 - Value & Volume Traded Indicators
Volume Parameters Value Parameters
% of Volume Traded
% of Value
Traded
Volume Traded (Mn)
LTM Avg Volume Traded (Mn)
Value Traded
(USD Mn)
LTM Avg Value
Traded (USD Mn)
MoM Deviation
(%)
MoM Deviation
(%)
48% 91% Saudi Arabia 6,678 6,708 -20% 34,115 38,993 -21%
29% 3% Kuwait 4,085 5,521 -55% 1,201 1,957 -49%
17% 2% UAE 2,424 4,125 -34% 842 1,432 -41%
1% 3% Qatar 144 184 -53% 1,027 1,620 -51%
2% 0% Oman 336 248 37% 183 187 -7%
2% 0% Bahrain 229 57 254% 116 29 274%
Total GCC 13,896 16,844 -36% 37,484 44,218 -24%
Source: Markaz Research
Data Table: 2 - Value traded (USD Bn)
2004 2005 2006 2007 2008 2009 2010 2011 2012
Saudi (TASI) 473 1103 1403 682 522 338 202 291 332.1
Kuwait (KSE) 51 97 60 131 134 75 44 22 15.2
Abu Dhabi (ADX) 4 29 19 48 83 19 9 7 3.3
Dubai (DFM) 14 110 95 103 63 48 19 9 8.8
Qatar (DSM) 6 28 21 30 47 26 19 23 9.7
Oman (MSM) 2 3 2 5 9 6 3 3 1.4
Bahrain (BAX) 0.4 0.6 1.4 0.9 2.2 0.48 0.29 0 0.2
Total 550 1371 1601 1000 860 512 296 354 371
Source: Zawya
Data Table: 3 - Blue Chips Performance
Companies
M.Cap (USD Bn)
Last Close
Monthly Change
2011 Change P/E TTM
1Q 2012 Earnings
YTD PAT (YoY Growth)
Saudi Arabia (SAR)
SABIC 74 92.8 -0.8 -4 -8 10 7,271 -5
Al-Rajhi Bank 30 73.8 1.4 6 -16 14 2,011 18
Saudi Telecom 21 39.5 -1.7 17 -21 9 2,521 60
Saudi Electricity Co. 14 12.9 -2.3 -7 -1 22 -583 NM
Samba Fin. Group 11 45.1 -3.4 -3 -24 9 1,145 2
United Arab Emirates (AED)
ETISALAT 20 9.2 5.0 1 -15 13 1,809 0
NBAD 9 8.3 -3.6 4 12 9 1,041 12
First Gulf Bank 7 8.0 -8.0 3 -11 6 935 7
Emirates NBD 4 2.7 0.7 -7 7 9 641 -55
Emaar Properties 5 2.8 -3.8 9 -28 9 606 44
Kuwait (KWD)
ZAIN 11 0.7 5.7 -18 -41 10 71 1
NBK 16 1.0 -1.9 0 -14 15 81 0
KFH 8 0.7 -1.3 -11 -16 27 20 -11
Gulf Bank 4 0.4 4.8 -10 -11 40 7 -25
Comm. Bk. Kuwait 4 0.8 2.6 -1 -14 - 0.3 -75
Qatar (QAR)
Industries Qatar 19 125.0 -8.7 -6 -4 9 1,907 -9
QNB 25 131.3 -1.1 -5 14 11 2,004 17
Ezdan Real Est. Co. 15 19.9 1.0 -10 -27 154 144 291
Q-TEL 9 103.5 -8.8 10 -5 11 711 -12
Comr‟cial Bk of Qatar 5 68.4 -3.4 -19 -9 9 471 6
Source: Excerpt from Markaz Daily Morning Brief
R E S E A R C H July 2012
R E S E A R C H July 2012
Disclaimer
This report has been prepared and issued by Kuwait Financial Centre S.A.K (Markaz), which is regulated by
the Central Bank of Kuwait. The report is owned by Markaz and is privileged and proprietary and is subject
to copyrights. Sale of any copies of this report is strictly prohibited. This report cannot be quoted without the prior written consent of Markaz. Any user after obtaining Markaz permission to use this report must clearly
mention the source as “Markaz “.This Report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial
instruments or to participate in any particular trading strategy in any jurisdiction. The information and
statistical data herein have been obtained from sources we believe to be reliable but in no way are warranted by us as to its accuracy or completeness. Markaz has no obligation to update, modify or amend
this report.
This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors are urged to seek financial advice
regarding the appropriateness of investing in any securities or investment strategies discussed or
recommended in this report and to understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each
security‟s price or value may rise or fall. Investors should be able and willing to accept a total or partial loss of their investment. Accordingly, investors may receive back less than originally invested. Past performance
is historical and is not necessarily indicative of future performance.
Kuwait Financial Centre S.A.K (Markaz) does and seeks to do business, including investment banking deals,
with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. For further information, please contact „Markaz‟ at P.O. Box 23444, Safat 13095, Kuwait. Tel: 00965 1804800 Fax: 00965 22450647. Email: [email protected]