‘Equity markets in the GCC have room to grow further’

Muscat: Gulf Cooperation Council (GCC) equity markets are considered some of the most promising markets, with room to grow further, given the abundance of liquidity and the strengthening of the economy. Yet, they are still generally dependent on global growth, asserted Malek Kanawati, CEO of Mubasher Financial Services (MFS).

Speaking exclusively to Times Business, Malek said, “Furthermore, some political instability in the Middle East and North Africa (Mena) region represents both an opportunity and a challenge to the region. On one hand, opportunity lies in funds shifting from troubled countries (e.g., Egypt, Tunisia, and Yemen) to the more stable countries of the GCC. On the other hand, the challenge lies in how governments can address popular demand for a better standard of living. But this should not be a concern for GCC countries, given their fiscal surpluses, thanks to relatively high oil prices.”

He observed, “The positive outlook for GCC equity markets is also supported by fundamentals since they rank amongst the lowest in the world in terms of price-to-earnings ratios (9-11x), with relatively high earnings growth rates (10-16 per cent). Also, their dividend yields are among the highest [in the world] (3-5 per cent).”

When asked which sectors in the GCC were the best investments at present, he said, “Almost all of the GCC governments are looking to diversify their economies away from the oil and gas sector. Non-oil sectors are expected to represent a significantly higher percentage of overall GCC GDPs. Cyclical sectors, such as real estate and materials (e.g., cement and steel), are expected to witness high growth rates in the GCC, as a result. Mega real-estate projects should drive demand, with Saudi Arabia providing more residential areas, while the United Arab Emirates and Qatar target the tourism sector. Meanwhile, reforms in the banking sector are continuing in order to absorb more liquidity from the economies [of GCC countries] , thanks to current accounts surpluses. Transportation is also considered a promising sector, with a focus on joining entire GCC countries through mega transportation projects.”

In considering the need for more equity investments in Oman and an enhancement of the capability of raising the number of exports, Malek suggested, “With a market capitalisation-to-GDP of around 25 per cent and a turnover ratio of just 14 per cent, there is room for Omani equity investments to grow. Indeed, the country’s market capitalisation (of some $20 billion) does not do justice to its $80-billion economy. The oil and gas sector comprises almost half the economy, with the consumption of petroleum products nearly doubling over the last 10 years or so, thanks to Oman’s industrialisation and expanding petrochemicals sector.”

“Although Oman is a significant net exporter of petroleum, Asia serves as the main consumer markets for Omani crude, led by China, Thailand, South Korea, and Japan. Because of the use of term contracts, Oman exports 55 per cent of its gas, despite suffering from a gas shortage, given its growing domestic demand. Oman’s difficult geography is said to be the main issue hindering the extraction of most of the country’s estimated oil and gas reserves. Thus, putting all the pieces of the puzzle together, equity investment in new technologies and pipeline projects (potentially through the capital market) is much needed in the future to make extraction feasible and, hence, raise oil and gas exports,.” He added.

Noting that Oman could benefit from Mubasher’s online trading platforms whilst exploring international markets, Malek said, “Omani residents can log into Mubashertrade’s online system to trade in more than 35 markets, stocks, commodities, and forex from a single account. The benefit is being able to find investment opportunities even when the local market is closed or quiet. Our proven award-winning technology works from Oman.”

Commenting on how emerging markets have been the focus for many investors over the past year while Western equities have struggled, Malek observed, “Considering that the global economic crisis started in the United States and reverberated through other European countries, investors have shifted focus to emerging markets that are least affected by the crisis. In addition, emerging markets continue to boast relatively higher real gross domestic product growth rates versus their counterparts with developed economies.

Thus, ultimately, emerging markets’ equities should have a higher investment potential than Western equities. But investors must keep in mind that while emerging markets should continue to enjoy higher growth rates vis-à-vis developed markets in the foreseeable future, they are not totally isolated from global economic swings.”

By Aftab h. Kola, Mar 17 2013