Global risk assets were quite divergent in terms of performance last month.
Emerging market equities outperformed developed market equities, large caps outperformed small caps, energy equities rebounded on a sharply stronger oil price and the changing dynamic of oil-related supply-demand factors, and the US dollar declined on changing expectations on US interest rate rises.
Against a backdrop of weak oil prices, the Mena region underwent a significant sell-off during the first two months of the year, but last month Mena markets and in particular GCC markets rebounded sharply. A number of positive factors led to improved investor sentiment, including an increase in oil price of 21.8 per cent, an announcement from the Saudi Arabian market regulator on the date of opening the market to foreign investors and the generally positive first-quarter earnings announcements from local companies.
Abu Dhabi’s bourse rose 4 per cent, Dubai 20.3 per cent, Saudi Arabia 12 per cent, Qatar 3.9 per cent, Kuwait 1.5 per cent and Oman 1.4 per cent last month. Egypt ended the month down 5.1 per cent.
For a majority of listed companies in the GCC, first-quarter earning releases were in line with or ahead of expectations, with the notable but understandable exception of oil and petrochemicals companies. Banks and real estate companies recorded a significant increase in quarterly profits, however it was noted that a lower oil price led to a slowdown or deferral of infrastructure and project activity in Saudi Arabia and the UAE.
In Saudi Arabia, a decline in net profit for a majority of the companies in the petrochemicals, energy and telecoms sectors dragged on overall corporate profit for the exchange, resulting in a 21.8 per cent drop in first-quarter net profit.
Qatar’s first-quarter aggregate net profit growth came in at 23.2 per cent, but this was significantly influenced by Barwa’s one-time gain. Adjusting for this item, Qatari companies reported a decline of 5.1 per cent in first-quarter net profit.
In Egypt, the president announced that parliamentary elections would not be held before Ramadan. This, together with uncertainty on the capital gains tax issue, weighed on the Egyptian stock market, which declined by 5.1 per cent for the month. International reserves are expected to exceed US$20 billion with the anticipated arrival of $6bn in GCC deposits at the Central Bank of Egypt.
The IMF has forecast Egypt’s GDP to grow 4 per cent this year and 4.4 per cent next year, with consumer price inflation at 10.3 per cent this year and 10.5 per cent next year.
The real estate sector in Egypt remained weak despite strong performance from GCC real estate stocks. The heavyweights TMGH and Palm Hills led the decline – shares of TMGH were down 3.73 per cent, while shares of Palm Hills were down by 19.6 per cent despite the recent announcement that the company would develop New Cairo City in partnership with the Egyptian government.
Palm Hills announced a 1.65bn Egyptian pound rights issue to support future development plans. Emaar Misr is expected to come to the market with an IPO in the coming months, while shares of Orascom Construction were listed on the EGX and Nasdaq Dubai as a part of a restructuring programme by OCI. The banking sector in Egypt outperformed the wider market, declining 1.7 per cent and bringing year-to-date return to 12.5 per cent.
As per the latest Egypt central bank data, total loan growth accelerated by 3.5 per cent month-on-month in March. On a year-on-year basis, loan growth was 18.1 per cent. The Egyptian currency fell by 0.6 per cent against the dollar in April. The pound has depreciated 6.6 per cent in the first four months of the year.
Investor sentiment in Mena markets has improved markedly, oil price has recovered from recent lows and supply-demand dynamics are likely to favour a continued recovery longer term. First-quarter earnings releases have confirmed the underlying health of regional economies and valuations across the region remain attractive.
Saleem Khokhar is the head of fund management and head of equities at NBAD Global Asset Management.
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