'GCC market outlook for 2019 positive'

Muscat: Amidst muted growth expectations in global markets, the economic outlook for the Gulf Cooperation Council (GCC) region as a whole remains positive, according to the Kuwait Financial Centre's (Markaz) recently released research report.
The surge in oil revenues and fiscal reforms of the past years will provide the necessary cushion for GCC countries to support economic growth through capital expenditure, the report said. Although the recovery in oil prices did not last for the entire year, GCC economies witnessed a sizeable increase in oil revenues.
Their fiscal and external balances started to recover after three lacklustre years, with only Bahrain and Oman running twin deficits in 2018. With the exception of Bahrain, where there is a weakness in government finances, economic factors remained largely favourable for the other GCC countries.
In the research report, Markaz analysed the performance of the GCC stock markets in 2018 and provided an outlook for 2019 based on a four-force framework that included economic outlook, corporate earnings potential, valuation attraction, and market liquidity, for each individual country.
Saudi Arabia
The past year has been a volatile year for the Saudi stock market. The Tadawul index started 2018 on a strong note, as the largest market in the GCC region was upgraded to "Emerging Market" status by both index providers, FTSE Russell and MSCI. However, the market soon lost ground as a sharp fall seen in oil prices coupled with the impact of political uncertainties significantly slowed down the pace of the rise in the stock market, which then had to settle with a yearly gain of 8.31 per cent.
Growth in corporate earnings remained flat for the first nine months of 2018, compared to the same period in the previous year. The media and entertainment sector led the way in earnings growth, with a rise of 38.3 per cent (year-on year) in the third quarter of 2018 after the Saudi government lifted the ban on movie theatres. The banking and telecommunications sector followed suit, registering gains of 28.9 per cent and 26.6 per cent, respectively. The banking sector’s profitability was supported by a rise in its net interest income in the increasing interest rate environment. With the sharp fall in oil prices, many of the sectors such as retail, construction, hotels & tourism and transport sectors reported lower earnings in 2018. The weakest performing sectors were real estate and utilities with falls of 30.1 per cent and 24.9 per cent, respectively.
UAE
The Dubai Financial Market (DFM) was the worst performing GCC market for the year 2018, with a year-to-date loss of 24.93 per cent. All the sectors registered a negative performance with consumer staples and investment and financial services being the worst of the lot, with substantial losses of 62 per cent and 44 per cent, respectively. The real estate and construction sector, which commands the highest weightage in the DFM General Index, saw a drop of 39 per cent in 2018. The Abu Dhabi Securities Exchange, on the other hand, was the second best performer in the GCC market with a yearly gain of 11.75 per cent, buoyed by healthy quarterly results of listed companies and stronger investor sentiments, boosted by government-led stimulus measures. The banking index, which accounts for 60 per cent of the overall index composition, saw a rise of 27 per cent for the year 2018.
UAE remained the major destination of foreign direct investment (FDI) inflows at about US$11 billion in 2017, accounting for 22 per cent of total FDI to the Middle East and North Africa region. Dubai’s foreign direct investment flows soared 26 per cent in the first half of 2018 to $4.84 billion compared to the same period in 2017, as announced by the Dubai Investment Development Agency. The investment law, which seeks to allow more than 49 per cent ownership to foreign investors in some specific business sectors, is in effect and could further boost the FDI flow into the country.
Qatar
Registering the best performance among its GCC peers, Qatar Stock Index saw a growth of 20.83 per cent in 2018. Most of the sectors had a positive year with banks and financial services and consumer goods and services registering the highest growth of 43% and 36% respectively.
Corporate profits rose 8.2 per cent on a year-on-year basis. Qatar’s banking system remains healthy with ample liquidity, high asset quality and strong capitalisation. Deposit growth of 6 per cent and loan growth of 5 per cent in 2018 should result in a further decline in the loan-to-deposit ratio. The real estate sector, which was under considerable pressure last year, has seen a healthy rebound in 2018 with the sector gaining 14.2 per cent this year. Qatar’s real estate sector is expected to see further growth, due to positive legislative changes by the government on the ownership of properties by foreign investors, which is likely to encourage further investments in this sector. In December 2018, Qatar announced its withdrawal from OPEC on the basis of its long-term strategy of shifting focus towards gas and away from oil.