GCC stocks likely to fare better in 2018

Sanyalaksna Manibhandu, the head of research at NBAD Securities, discusses the outlook for regional equities

The Abu Dhabi stock market has had a strong 2018 amid higher oil prices and government stimulus. Christopher Pike / The National.

What was behind the sluggish performance of the UAE and GCC equities in 2017? 

A combination of a slowing economy, regional political and diplomatic tensions, and some unforeseen events have combined to make GCC equities an underperformer in 2017.

What are the prospects for the region in 2018? More of the same or a recovery of sorts?

We see GCC stock markets doing better in 2018 than they did in 2017 due to the following factors:

1)  A recovery in GDP momentum (most forecasters are looking for GCC economies to perform better in 2018 compared to 2017 and a year earlier )

2) Further strength in Brent crude prices (the mean Brent price in 2018 could be higher than 2017)

3) More attractive relative valuation in the GCC markets compared with  the emerging markets as a whole

4) A stronger earnings momentum from net interest margin (NIM) expansion amid further tightening in monetary policy and firmer crude prices

5) Restructuring, including privatisation, industry consolidation and Saudi Arabia possibly getting confirmation in 2018 of an upgrade to emerging market status in 2019

_______________

Read more:

_______________

Is the UAE likely to see more initial public offerings (IPOs) in 2018 following the listings in late 2017? Is there local / international appetite for such listings?

The market is alert to the potential for IPOs in 2018.  Whether new equity issues come to market, depends partly on the market conditions.  There is local and international appetite for new issues from industry sectors in the economy that are not already represented on the stock exchanges.

IPO investors are also looking for new issues to be offered at a minimum of 5 per cent dividend yield, a price-to-earning (PE) ratio that is no higher than that of the market, and for the company looking to IPO to command a strong competitive position in the industry sector it is operating in.

Based on reports in the media, there are one or two companies meeting investor requirements looking to IPO in 2018.

Saudi Arabia is widely expected to be selected for emerging market inclusion by MSCI in 2018 for 2019 -- how significant will the impact of such an event be for Saudi stocks?

This is going to be a significant event in terms of attracting incremental global portfolio investor flows to Saudi Arabia and to the wider region. Tadawul has a huge market capitalisation and hosts a diversified list of industry sectors that is attractive to a wide range of international portfolio investors.