According to a monthly Reuters poll of 13 leading Middle East fund managers, participants have become more defensive following the drop in oil prices and expect on balance to reduce their equities exposure and increase their fixed income portfolios.
Dubai’s stock market was the worst performer among its peers in the region, dropping 4.16 percent in November. Abu Dhabi’s index was the second worst performer, dropping 2.69 percent.
Real estate shares were a drag on both indices. A Thomson Reuters index of UAE real estate shares fell 8.83 percent during the month.
“Economic activity in the emirate has been lagging as real estate prices dropped and domestic demand faltered, prompting the government to announce a series of measures to stimulate growth. Traditional growth engines of Dubai economy such as real estate, trade, transport & hospitality have remained weak,” Raghu Mandagolathur, head of research at Kuwait Financial Centre (Markaz) said in a blog published on the company’s Marmore website.
“On a valuation basis, the overall market looks highly undervalued, currently trading at a P/E of 7.5 when compared with the S&P GCC Composite Index valuation of 14.8,” Mandagolathur added.
Emaar Properties’ Q3 2018 net profit attributable to shareholders amounted to 1.10 billion United Arab Emirates dirhams ($299.5 million), compared to 1.55 billion UAE dirhams for the same period last year.
Nishit Lakhotia, head of research as Bahrain based bank SICO, told Zawya by email that Emaar Properties led the Dubai index lower “on weak 3Q earnings and overall negative sentiments and newsflow towards RE (real estate) and hospitality sector in the emirate.“
Lakhotia said that Abu Dhabi’s stock market was also dragged lower “due to both Etisalat and FAB (First Abu Dhabi Bank) declining 4.5% and 1.6% MoM (month-on -month) and together (they) have 65%+ weight in the index”
Etisalat’s Q3 2018 net profit attributable to shareholders amounted to 2.3 billion United Arab Emirates dirhams, compared to 2.4 billion UAE dirhams for the same period last year.
FAB’s Q3 2018 net profit attributable to shareholders amounted to 3.02 billion United Arab Emirates dirhams, compared to 2.61 billion UAE dirhams for the same period last year.
Saudi Arabia’s index dropped 2.58 percent in November as the sharp drop in oil prices weighed on petrochemical shares in the Kingdom.
Shares in petrochemical giant, Saudi Basic Industries Corporation (SABIC) fell 7.41 percent.
According to data from Eikon, one analyst has a ‘strong buy’ rating on the stock while three analysts have a ‘buy’ rating, eight analysts have a ‘hold’ rating a and one analyst has a ‘sell’ rating.
“Going forward, some clarity on OPEC strategy today after the meet can possibly act as a trigger. Saudi budget will also be closely watched. Further, we need some cooling off in geopolitics tension for market confidence to return,” Lakhotia said.
The Organisation of the Petroleum Exporting Countries (OPEC) met on Friday in Vienna and eventually agreed on Saturday to cut production by 0.8 million barrels per day, while non-OPEC members also agreed to cut production by a further 0.4 million barrels, meaning 1.2 million barrels per day will be removed from production from January 2019.
“We saw some decent QFI (qualified foreign investor) buying towards end of November, so possibly this is a sign that some of the foreign institutional investors have started repositioning into Saudi ahead of FTSE and MSCI inclusion,” Lakhotia added.
Index complier MSCI will include Riyadh in its benchmark emerging market index, which is expected to attract billions of dollars from foreign funds to the market – both passive and active funds. In June, MSCI said it would upgrade the kingdom to emerging market status in phases from mid-2019.
Saudi Arabia’s stock market will also join FTSE Russell’s emerging market index starting in March next year.
Kuwait’s premier market index was the best performer in the region, adding 1.6 percent in November.
“Kuwait is possibly the most exciting market for managers, given macro strength, minimal geopolitical worries and fund flows and triggers from FTSE inclusion (second tranche) and MSCI inclusion (decision),” Lakhotia said.
On April 1st 2018, Kuwait divided its stock market into three segments in an effort to reform its stock market and increase liquidity. The three market segments are the premier market, the main market and the auction market.
FTSE had announced in September 2017 that it will add Kuwait’s stock market to emerging market index in two equal stages in September and December 2018.
MSCI announced that it will consider reclassifying Kuwait from Frontier Market to Emerging Market status at its annual market review in 2019.
“Monthly volume increased by a third to reach 1.9 Bn (Billion) shares during November-18 despite a decline in monthly value traded which dropped by 8.1% to reach KWD 284.8 Mn (Million) as compared to KWD 309.8 Mn during the previous month,” investment company KAMCO said in a monthly eqities market report.
“Small cap stocks dominated the monthly performance chart during the month, while prominent large-cap monthly gainers included Kuwait International Bankwith a gain of 10.5% followed by Human Soft and Viva Kuwait with monthly gains of 9.5% and 8.8%, respectively,” the report added.
The Qatari market was also among the gainers during the month, adding 0.62 percent.
Shares in 25 companies dropped, while 20 companies made gains. The real estate index was the best performer and a Thomson Reuters index of Qatari real estate shares showed that the index gained 12.21 percent in November.
“In terms of trading activity, QNB topped the monthly value traded chart with QAR (Qatari riyal) 888 Mn worth of shares traded, followed by Barwa Real Estateand Qatar Fuel recording QAR 852 Mn and QAR 677 Mn in monthly value traded,” the KAMCO report said.
“The Banks & Financial Services sector was the most active in terms of value traded during Nov-18, accounting for 44.7% of the total value traded, followed by Real Estate and Consumer Goods & Services sectors, as they accounted for 19.1% and 14.0% of the total value traded respectively,” the report added.
According to the Reuters poll of 13 fund managers, one participant expects to increase his equity allocation to the Qatari market, while four expect to reduce their allocation and eight said they will keep their allocation the same.
Egypt’s stock market index increased in value by 0.52 percent during November.
In late November, Egypt’s cabinet gave preliminary approval to a proposed amendment to the way bank taxes are calculated. Shares in banks like Commercial International Banks dropped on concerns over the proposed law.
However, Valecha noted that the move has rattled the banking stocks and Commercial International Bank “which accounts for almost one-third of total market capitalization of Egypt has fell by 6.76 percent in November alone”. He expects the fall to be short lived, however, adding that the law is positive for the overall economy.
A Thomson Reuters index of Egyptian banking shares shows that they dropped in value by 5.39 percent in November.
Bahrain’s index was among the best performers, adding 1.07 percent.
“AUB (Ahli United Bank) was the most actively traded stock in Nov-18 with BHD 16.6 Mn worth of its shares traded on the exchange. GFH and Batelco followed with BHD 1.7 Mn and BHD 1.1 Mn worth of shares traded,” the KAMCO report said.
Oman’s index edged 0.25 percent lower.
“In terms of investor participation, local investors’ contribution declined as compared to the previous month and were mainly sellers in the market. Omanis accounted for 73.7% of total value of shares bought during the month (73.4% during October-18) and 90.0% of volumes (84.1% during the previous month),” according to the KAMCO report.