Credit Suisse is betting on defensive telecommunications stocks to outperform GCC equities amid concern that the global economic recovery is faltering.
"We tactically revise our sector allocation in the GCC in anticipation of renewed debate over double-dip recession in the global economy," Mohamad Hawa, an analyst at Credit Suisse in London, said in a note to clients.
"GCC equity markets, especially Saudi Arabia, are mainly driven by retail investors' sentiment, which is likely to deteriorate, in our view."
The analyst said he recommended exposure to telecoms for their high-dividend yields with Saudi Telecom at 8.8 per cent, Zain at 6.8 per cent, Mobily at 5.8 per cent and Qtel at 3.4 per cent. Mr Hawa also prefers consumer staples. Savola Azizia United, the Saudi food producer, and Almarai, the largest dairy company in the Gulf region, have a 6 per cent weighting each in the new portfolio.
Oil has dropped 12 per cent since its peak in April. Brent crude for October delivery was up 10 cents to US$108.46 a barrel yesterday.
The main components in the materials sector in the Middle East and North Africa have been benefiting from strong growth in both volumes and prices.
"We are worried of downside risks, as we expect volumes growth in the medium term to decelerate down from 20 per cent this year to 5 per cent next year and 3 per cent in 2013," Mr Hawa said.
The analyst holds neutral exposure to chemicals in the model portfolio as the sector would be the main beneficiary of any potential quantitative easing.
Central bankers will meet at the annual Kansas City Federal Reserve's Jackson Hole Economic Symposium in the US this week amid speculation that Ben Bernanke, the Fed chairman, may signal a third round of asset purchases to boost the world's largest economy.
The Bloomberg GCC 200 Index of stocks lost 0.04 per cent to 53.75 points yesterday.
