Middle East fund managers expect to put money back into Arabian Gulf stock markets in coming months once the shock of the plunge in oil prices fades, the latest Reuters survey of regional asset managers shows.
The slide of Brent crude to $70 a barrel last week, from around $115 in June, has shifted the outlook for the oil-exporting Gulf economies. This has caused Gulf equities to underperform after a couple of years of strong outperformance.
The main Saudi stock index has tumbled 19 per cent from its September peak, giving up almost all of this year’s gains; Dubai’s index is down 17 per cent from this year’s high. By contrast, the MSCI emerging markets index is down just 9 per cent.
In the survey of 15 leading Middle East investment managers, conducted over the past 10 days, many said Gulf stock markets could drop further in the short term if oil remained weak.
“The sharp drop of oil prices and the uncertainty over future prices in the medium term mean buy-side liquidity has continued to stay out until it’s clearer...” said Mohammed Ali Yasin, managing director of NBAD Securities in Abu Dhabi.
“In the absence of catalyst events in December, and without any company news, markets are expected to continue their current trends, or maybe go slightly lower, as they will be weak to any sell-offs or profit-taking activities before year-end.”
However, he and others said the longer-term outlook for Gulf equities was not bearish, and that valuations might now have come down far enough to permit substantial flows of funds back into the markets early next year.
The survey found 53 per cent of fund managers expecting to raise their allocations to Middle East stocks over the next three months, and 27 per cent expecting to reduce them.
That was little changed from last month’s survey, which was conducted when Brent crude was around $85 and found 47 per cent of managers intending to raise Middle East equity allocations, and 20 percent intending to decrease them.
The most recent survey showed 53 per cent of funds expecting to raise Saudi Arabian equity allocations over the next three months, despite the heavy dependence of the Saudi economy on oil and the large weightings of petrochemical firms - roughly one-third - in its stock market. Twenty per cent expect to reduce Saudi equity allocations.
In the UAE, where bourses feature few stocks directly related to oil and are instead focused on banks and real estate firms, 47 per cent anticipate raising equity allocations and 20 per cent see themselves reducing them.
A year of $70 oil would slash the tens of billions of dollars in oil income pouring into the Gulf states. But it would not necessarily force sharp slowdowns in economic growth or corporate profits.
That is because the oil wealth goes into the coffers of Gulf governments. With oil at $70, Saudi Arabia and the UAE will probably start posting state budget deficits, but they can keep spending at high levels if they dig into their huge fiscal reserves or finance themselves with debt issues.
Most fund managers and analysts expect governments to do exactly that; state spending growth in the big Gulf economies may slow but looks unlikely to go into reverse. Bahrain and Oman have weaker finances and may be forced to cut back much more sharply, but their economies are tiny.
In the worst case, next year’s growth in the big Gulf economies may not reach the levels of above 4 per cent that analysts were predicting a few months ago, but it is likely to stay robust by the standards of much of the rest of the world.
“The key point is that the region is in a strong position to absorb the hit to its income,” said Jason Tuvey, Middle East economist at Capital Economics in London.
“Admittedly, budget positions in a number of countries may now be in deficit. But these can be easily financed by issuing debt or drawing down large savings. Moreover, oil prices would have to fall further before the region’s aggregate current account position swung from surplus to deficit.”
He added, “The upshot is that a period of lower oil prices is unlikely to cause growth across the region to collapse.”
Earnings of petrochemical producers would be hardest hit by oil at $70; Gulf producers would lose the competitive advantage they enjoy over foreign rivals from low feedstock prices, and would face valuation losses on their inventories. Analysts have already slashed their average forecast for the Saudi petrochemical sector’s earnings growth this year to 13 per cent from 25 per cent, according to Thomson Reuters data.
With the Saudi private sector in good health, the impact on other industries would be significant but less dramatic.
Earnings across the entire Saudi stock market are now expected to grow 12 per cent this year, instead of 17 per cent forecast in mid-September.
Other big Gulf stock markets, less exposed to petrochemical earnings, would see a weaker effect.
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COMPANY PROFILE
● Company: Bidzi
● Started: 2024
● Founders: Akshay Dosaj and Asif Rashid
● Based: Dubai, UAE
● Industry: M&A
● Funding size: Bootstrapped
● No of employees: Nine
What is Folia?
Prince Khaled bin Alwaleed bin Talal's new plant-based menu will launch at Four Seasons hotels in Dubai this November. A desire to cater to people looking for clean, healthy meals beyond green salad is what inspired Prince Khaled and American celebrity chef Matthew Kenney to create Folia. The word means "from the leaves" in Latin, and the exclusive menu offers fine plant-based cuisine across Four Seasons properties in Los Angeles, Bahrain and, soon, Dubai.
Kenney specialises in vegan cuisine and is the founder of Plant Food Wine and 20 other restaurants worldwide. "I’ve always appreciated Matthew’s work," says the Saudi royal. "He has a singular culinary talent and his approach to plant-based dining is prescient and unrivalled. I was a fan of his long before we established our professional relationship."
Folia first launched at The Four Seasons Hotel Los Angeles at Beverly Hills in July 2018. It is available at the poolside Cabana Restaurant and for in-room dining across the property, as well as in its private event space. The food is vibrant and colourful, full of fresh dishes such as the hearts of palm ceviche with California fruit, vegetables and edible flowers; green hearb tacos filled with roasted squash and king oyster barbacoa; and a savoury coconut cream pie with macadamia crust.
In March 2019, the Folia menu reached Gulf shores, as it was introduced at the Four Seasons Hotel Bahrain Bay, where it is served at the Bay View Lounge. Next, on Tuesday, November 1 – also known as World Vegan Day – it will come to the UAE, to the Four Seasons Resort Dubai at Jumeirah Beach and the Four Seasons DIFC, both properties Prince Khaled has spent "considerable time at and love".
There are also plans to take Folia to several more locations throughout the Middle East and Europe.
While health-conscious diners will be attracted to the concept, Prince Khaled is careful to stress Folia is "not meant for a specific subset of customers. It is meant for everyone who wants a culinary experience without the negative impact that eating out so often comes with."
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How to protect yourself when air quality drops
Install an air filter in your home.
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Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
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Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
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Moment of the day Lahiru Gamage, the Sri Lanka pace bowler, has had to play a lot of cricket to earn a shot at the top level. The 29-year-old debutant first played a first-class game 11 years ago. His first Test wicket was one to savour, bowling Pakistan opener Shan Masood through the gate. It set the rot in motion for Pakistan’s batting.
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The verdict One year ago, when Pakistan played their first day-night Test at this ground, they held a 222-run lead over West Indies on first innings. The away side still pushed their hosts relatively close on the final night. With the opposite almost exactly the case this time around, Pakistan still have to hope they can salvage a win from somewhere.
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The group added that a 15 per cent drop in customer basket size offset an 11.6. per cent rise in the number of customer transactions.
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Dubai works towards better air quality by 2021
Dubai is on a mission to record good air quality for 90 per cent of the year – up from 86 per cent annually today – by 2021.
The municipality plans to have seven mobile air-monitoring stations by 2020 to capture more accurate data in hourly and daily trends of pollution.
These will be on the Palm Jumeirah, Al Qusais, Muhaisnah, Rashidiyah, Al Wasl, Al Quoz and Dubai Investment Park.
“It will allow real-time responding for emergency cases,” said Khaldoon Al Daraji, first environment safety officer at the municipality.
“We’re in a good position except for the cases that are out of our hands, such as sandstorms.
“Sandstorms are our main concern because the UAE is just a receiver.
“The hotspots are Iran, Saudi Arabia and southern Iraq, but we’re working hard with the region to reduce the cycle of sandstorm generation.”
Mr Al Daraji said monitoring as it stood covered 47 per cent of Dubai.
There are 12 fixed stations in the emirate, but Dubai also receives information from monitors belonging to other entities.
“There are 25 stations in total,” Mr Al Daraji said.
“We added new technology and equipment used for the first time for the detection of heavy metals.
“A hundred parameters can be detected but we want to expand it to make sure that the data captured can allow a baseline study in some areas to ensure they are well positioned.”
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Ashes 2019 schedule
August 1-5: First Test, Edgbaston
August 14-18: Second Test, Lord's
August 22-26: Third Test, Headingley
September 4-8: Fourth Test, Old Trafford
September 12-16: Fifth Test, Oval