MR04072012

Kuwait Financial Centre “Markaz” R E S E A R C H

World Markets Get Something to Cheer GCC markets still in red

June 2012 Returns (%)

S&P 500 MSCI World MSCI EM S&P GCC

3.96 4.93 3.43 -2.91

The Euro Summit at the end of June 2012 was the major reason for most

world indices ending on a positive note. After 13.5 hours of talks ending at

4:30 a.m. in Brussels on 29th June, leaders of the 17 euro nations dropped

the requirement that governments get preferred-creditor status on crisis

loans to Spain‟s banks and opened the door to recapitalizing banks directly

with bailout funds once Europe sets up a single banking supervisor. They

also discussed reducing the market pressure on Italy and Spain by allowing

them to access rescue loans without relinquishing control of their

economies. This news boosted the financial markets worldwide albeit late in

the month.

The MSCI world index was up 4.9% for the month and almost all major

indices ended on a positive note. Frontier markets and Shanghai were

exceptions posting losses of 0.8% and 6.2% respectively. Following the

news of the European Summit the US treasury notes fell for the first time

on June 29th since March 2012. The 10 year Treasury note yield rose 9 basis

points to 1.65%.

However, the month long scenario was not looking so good for the financial

markets. Indian rupee saw its lowest levels and Chinese indices looked

depressed for almost the entire month on the concerns of a manufacturing

slump.

GCC markets were down in June, losing 2.9% after a decrease of 6.1% in

May. Saudi (TASI) was the largest loser shedding 3.80% for the month,

followed by Qatar which lost 3.49%. Dubai has been the best performing

market YTD, with a gain of 7.28%. Kuwait lost 0.60% in June while Bahrain

and Oman both lost 1.13 %.

Volume decreased 36% MoM in the GCC and Value Traded also decreased

24 % to USD 37.5 bn. This was on the back of 25% MoM drop in volumes

and 38% decrease in Value Traded in May. Saudi Arabia, which accounted

for 48% of GCC‟s total volume traded, witnessed a 21% MoM drop in value

traded.

Risk in the GCC (as measured by the Markaz Volatility Index – MVX)

increased 17.57 % in June. Risk in Abu Dhabi increased 146 % for the

month while Oman shed 46%.

Valuations dropped in the GCC as markets suffered two consecutive

monthly losses. Most countries traded near the 8x-12x range.

July 2012

Research Highlights:

Review of global and regional stock markets for the previous

month

Markaz Research is

available on Bloomberg - Type “MRKZ” <Go>

Thomson Research, Reuters Knowledge

Nooz

Zawya Investor ISI Emerging markets

Capital IQ FactSet Research Connect

TheMarkets.com

M.R. Raghu CFA, FRM Head of Research

+965 2224 8280 [email protected]

Madhu Soothanan Senior Research Analyst

+965 2224 8000 Ext: 4603 [email protected]

Animesh Tulsyan Analyst

+965 224 8000 Ext : 4607 [email protected]

Kuwait Financial Centre

S.A.K. “Markaz”

P.O. Box 23444, Safat 13095,

Kuwait Tel: +965 2224 8000

Fax: +965 2242 5828 markaz.com

http://topics.bloomberg.com/spain/

mailto:[email protected]



R E S E A R C H July 2012

Kuwait Financial Centre “Markaz”

2

Global Markets Review – June 2012

For the Global Markets major action was held back till month end when on

29th June after 13½ hours of talk in Brussels leaders of the 17 euro nation‟s

relaxed conditions on emergency loans for Spanish banks and also a

possible help for Italy. Markets worldwide reacted positively to the news

and all major indices made gains during the month end. However the late

surge shown by the Chinese Indices was not sufficient to cover the month

wide loss on concerns of a manufacturing slump. Frontier Markets ended on

a slightly negative note for the month. USA 10 year treasury notes fell for

the first time since March 2012. The 10 year Treasury note yield rose 9

basis points to 1.65%.

CBOE VIX decreased 29% during the month signaling reduced volatility.

The CRB commodity index remained flat at the end of the month.

Figure 1: Monthly Returns – June 2012 (%)

On a YTD basis, India BSE rules the bunch with a gain of 12.8% followed by

S&P 500 which is up 8.3% for the year. Frontier Markets suffered the most

with a loss of 4.7% in 2012.

Figure 2: Price Returns – YTD (%)

The MSCI World index was

gained 4.9% in June mostly because of good news

coming from Euro zone.

On a YTD basis, Sensex

rules the bunch with a gain of 12.8%



3

World

As mentioned earlier, the major action for the world market was held back

till the conclusion of European Union Summit on 28th June. The positive

news coming from Euro Zone gave a boost to worldwide stock markets

although late in the month. The positive conclusion of summit was of high

importance given the flow of negative news in the market couple of weeks

before the summit. The German chancellor, Angela Merkel had already

denied any possibility of pooling of Eurozone debt; Moody‟s downgraded 28

Spanish banks, yield on Spain‟s 10 year government bond rose as high as

6.96 % and Cyprus became fifth Eurozone country to seek bailout.

During the entire month, the going was not so easy in financial markets.

Initial Public Offerings fell 34% this quarter as compared to last year. IPOs

globally raised USD 41.3 billion. This is worst second quarter since 2009,

data compiled by Bloomberg show. Federal Open Market Committee in its

most recent meeting decided to keep the target range for the federal funds

rate at 0 to 0.25% and currently anticipates exceptionally low levels for the

federal funds rate at least through late 2014.

Meanwhile in India, S&P‟s announcement that India could become the first

of the BRIC economies to lose its investment-grade status, created ripples

in financial market. The Central Bank of China cut the official one year

borrowing rate by 25 basis points to 6.31%. This was the country‟s first rate

cut since the depths of global financial crisis in 2008-09.

Chart Pack – Global Markets

Figure: 3 – Capital Flows to Emerging Economies Figure: 4 - Feds Fund Target Rate

Figure: 5 - US Dollar Figure: 6 -Housing Market Index

The conclusion of European Summit brought

cheers to financial markets worldwide.



4

Figure: 7 - US Unemployment (Seasonally Adj) Figure: 8 - Crude Brent Oil Prices

Figure: 9 - TED Spread Figure: 10 - CBOE VIX

Figure: 11 - CRB Commodity Index



5

GCC Markets Review – June 2012 GCC markets were down in June, losing 2.91% after a decrease of 6.1% in

May. All GCC markets except Abu Dhabi were in the red. Saudi (TASI) was the largest loser shedding 3.80% for the month, followed by Qatar which

lost 3.49%. Dubai has been the best performing market YTD, with a gain of

7.28%. Kuwait lost 0.60% in June while Bahrain and Oman both lost 1.13%.

Market Indicators

Indicators M. Cap

(USD Bn) Last Close Monthly

Return % YTD % 2011% P/E TTM

Saudi (TASI) 347 6,710 -3.80 4.55 -3.07 12

Kuwait SE WT.INDEX 102 402 -0.60 -0.82 -16.89 15

Qatar(Doha SM) 93 8,123 -3.49 -7.47 1.12 8

Abu Dhabi (ADI) 75 2,448 0.27 1.89 -11.68 7

Dubai (DFMGI) 46 1,452 -1.33 7.28 -17.00 9

Bahrain (BAX) 17 1,127 -1.13 -1.48 -20.15 8

Oman(Muscat SM) 14 5,690 -1.13 -0.09 -15.69 12

S&P GCC Composite Index 234 93 -2.91 0.97 -8.47 11

Source: Excerpt from Markaz „Daily Morning Brief‟

A study done by Dubai Chamber of Commerce and Industry (DCCI)

combines the latest International Monetary Fund (IMF) data, with the data

from national authorities.1 It indicates that the GCC as a whole will record a

year on year growth of 5.4% in 2012. As such, for the GCC as a whole, IMF

projects that fiscal and current account surpluses will stand at 13.1% and

22.2% of GDP in 2012 respectively.

Saudi Arabia

Fitch Ratings has affirmed SABIC long-term Issuer Default Rating (IDR) at

„A+‟, senior unsecured rating at „A+‟ and Short-term IDR at „F1‟. The

Outlook on the Long-term IDR is Stable. The senior unsecured rating on

Sabic Capital I B.V.‟s guaranteed bonds has also been affirmed at „A+.

SABIC lost 0.53% in June and closed at SAR 93.00

SABIC and affiliates of ExxonMobil announced they will construct a world-

scale specialty elastomers facility at the Al-Jubail Petrochemical Company

(KEMYA) manufacturing joint venture

Jabal Omar Development Company signed a SR5 billion (USD 1.33 billion)

loan agreement with a group of local banks to refinance an upcoming

bridge loan maturity and fund the development of hotels and shops in

Makkah. The company lost 7.26% in June and closed at SAR 17.25.

Saudi Electricity Company (SEC) would buy back its SAR 5bn (USD 1.3bn)

sukuk issued in 2007, in accordance with the terms of that issue. The

company lost 2.27% in June and closed at SAR 12.90

1 Economic Times, gulfbase.com

GCC markets continued its

losses in June, losing 2.91%

SABIC lost 0.53 % in June

and closed at SR 93.00.



6

United Arab Emirates

The latest DCCI study indicated that the UAE will see a year on year GDP

growth of 4.5% in 2012.

Tamdeed Projects, a part of UAE-based Etisalat Services Holding has signed

a partnership agreement with Panduit Corp. Etisalat closed at AED 9.34

at a gain of 0.11%

A consortium of Arabtec Holding that includes Greek and Turkish firms won

a AED 10.8bn (USD 2.94bn) contract from the Abu Dhabi government to

build a mid-field terminal at its airport. Arabtec closed at AED 2.82 at a

loss of 3.09% in June.

Abu Dhabi National Energy Co. (TAQA) signed a multicurrency project

finance loan of USD 1.4 billion to expand its Jorf Lasfar thermal power plant

in Morocco. TAQA closed at AED 1.21 at a gain of 2.54% in June.

Kuwait

According to the latest IMF article IV report on Kuwait Government

expenditure continued to increase in FY 2011/12 by 8%, reflecting a

significant increase in the wage bill and capital expenditure (about 20%).

The budget expansion was more than offset by the increase in oil revenue

(35%). Kuwait real GDP growth has been forecasted to be 6.6% for 2012.

NBK moved a step closer to a takeover of Kuwait‟s Boubyan Bank, but a

disputed stake held by another bank remains an obstacle to the USD 2.1 billion deal. NBK lost 1.92% in June.

Kamco has said that it booked a profit of KWD 1.5 million (USD 5.35 million)

on the sale of its entire KWD 4 million stake in a non-listed investment. The

shares of the company closed at KWD 0.232 at a loss of 2.52%.

Qatar

The latest DCCI study indicated that the Qatar will record a year on year

growth of 9.4% in 2012. This growth projection is relatively very high when

compared to real GDP growth projection of 6% as per IMF‟s World

Economic Outlook Report (April 2012).

Qatar Telecom offered to pay about KWD 640 million (USD 2.3 billion) to

purchase shares it doesn‟t own in Kuwait‟s National Mobile

Telecommunications Co. Qatar Telecom closed at QAR 103.50 at a

loss of 8.81 in June.

Qatar National Bank is seeking a USD 1.5 billion loan as it seeks additional

capital ahead of a USD 1.85 billion repayment coming due next month. It

closed at QAR 131.30 at a loss of 1.13% in June.

A consortium of Arabtec Holding that includes Greek

and Turkish firms won a USD

2.94bn contract

Volume was down 36% in the

GCC while Value Traded

dropped 24% to USD 37.5 bn



7

Liquidity, Risk & Valuation Volume decreased 36% MoM in the GCC and Value Traded also decreased

24% to USD 37.5 bn. This was on the back of 25% MoM drop in volumes and

38% decrease in Value Traded in May. Saudi Arabia, which accounted for

48% of GCC‟s total volume traded, witnessed a 21% MoM drop in value

traded.

Risk in the GCC (as measured by the Markaz Volatility Index – MVX)

increased 17.6% in June. Risk in Abu Dhabi increased 146% for the month

while Oman shed 46%.

Valuations dropped in the GCC as markets suffered two consecutive

monthly losses. Most countries traded near the 8x - 12x range.

Chart Pack – GCC

Figure: 12 – Saudi Arabia – PE Band Figure: 13 – Dubai – PE Band

Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon

Figure: 14 – Abu Dhabi – PE Band Figure: 15 - Qatar – PE Band

Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon Figure: 16 - Oman – PE Band Figure: 17 - Bahrain – PE Band

Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon



8

Figure: 18 – Average Daily Value Traded (USD mn)

Figure: 19 - Risk & Return (June 2005 – June 2012) – GCC Vs Developed & EM

Figure: 20 – Comparative MVX Levels – June 2012

Source: MVX is a proprietary volatility index developed by Markaz Research

EAFE

World USA

EM

GCC Saudi Arabia

Kuwait

UAE

Qatar

Bahrain

Oman

-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

16%

10% 15% 20% 25% 30% 35% 40% 45%

CAG

R

Annualized Risk

Source: Thomson Reuters Eikon, Markaz Research



9

Figure: 21 – US Dollar Returns on GCC Markets

Figure: 22 - Saudi Arabia Repo Rate Figure: 23 - Kuwait Rates

Figure 24: Dubai CDS 5 yr

Jun-12, 359

402

0

100

200

300

400

500

600

700

800

900

1000

Fe

b-0

8

Ma

y-0

8

Au

g-0

8

No

v-0

8

Fe

b-0

9

Ma

y-0

9

Au

g-0

9

No

v-0

9

Fe

b-1

0

Ma

y-1

0

Au

g-1

0

No

v-1

0

Fe

b-1

1

Ma

y-1

1

Au

g-1

1

No

v-1

1

Fe

b-1

2

Ma

y-1

2

Bp

s

Dubai CDS

Historical Average

Source: Thomson Reuters Eikon



10

Data Tables – GCC Data Table: 1 - Value & Volume Traded Indicators

Volume Parameters Value Parameters

% of Volume Traded

% of Value

Traded

Volume Traded (Mn)

LTM Avg Volume Traded (Mn)

Value Traded

(USD Mn)

LTM Avg Value

Traded (USD Mn)

MoM Deviation

(%)

MoM Deviation

(%)

48% 91% Saudi Arabia 6,678 6,708 -20% 34,115 38,993 -21%

29% 3% Kuwait 4,085 5,521 -55% 1,201 1,957 -49%

17% 2% UAE 2,424 4,125 -34% 842 1,432 -41%

1% 3% Qatar 144 184 -53% 1,027 1,620 -51%

2% 0% Oman 336 248 37% 183 187 -7%

2% 0% Bahrain 229 57 254% 116 29 274%

Total GCC 13,896 16,844 -36% 37,484 44,218 -24%

Source: Markaz Research

Data Table: 2 - Value traded (USD Bn)

2004 2005 2006 2007 2008 2009 2010 2011 2012

Saudi (TASI) 473 1103 1403 682 522 338 202 291 332.1

Kuwait (KSE) 51 97 60 131 134 75 44 22 15.2

Abu Dhabi (ADX) 4 29 19 48 83 19 9 7 3.3

Dubai (DFM) 14 110 95 103 63 48 19 9 8.8

Qatar (DSM) 6 28 21 30 47 26 19 23 9.7

Oman (MSM) 2 3 2 5 9 6 3 3 1.4

Bahrain (BAX) 0.4 0.6 1.4 0.9 2.2 0.48 0.29 0 0.2

Total 550 1371 1601 1000 860 512 296 354 371

Source: Zawya

Data Table: 3 - Blue Chips Performance

Companies

M.Cap (USD Bn)

Last Close

Monthly Change

2011 Change P/E TTM

1Q 2012 Earnings

YTD PAT (YoY Growth)

Saudi Arabia (SAR)

SABIC 74 92.8 -0.8 -4 -8 10 7,271 -5

Al-Rajhi Bank 30 73.8 1.4 6 -16 14 2,011 18

Saudi Telecom 21 39.5 -1.7 17 -21 9 2,521 60

Saudi Electricity Co. 14 12.9 -2.3 -7 -1 22 -583 NM

Samba Fin. Group 11 45.1 -3.4 -3 -24 9 1,145 2

United Arab Emirates (AED)

ETISALAT 20 9.2 5.0 1 -15 13 1,809 0

NBAD 9 8.3 -3.6 4 12 9 1,041 12

First Gulf Bank 7 8.0 -8.0 3 -11 6 935 7

Emirates NBD 4 2.7 0.7 -7 7 9 641 -55

Emaar Properties 5 2.8 -3.8 9 -28 9 606 44

Kuwait (KWD)

ZAIN 11 0.7 5.7 -18 -41 10 71 1

NBK 16 1.0 -1.9 0 -14 15 81 0

KFH 8 0.7 -1.3 -11 -16 27 20 -11

Gulf Bank 4 0.4 4.8 -10 -11 40 7 -25

Comm. Bk. Kuwait 4 0.8 2.6 -1 -14 - 0.3 -75

Qatar (QAR)

Industries Qatar 19 125.0 -8.7 -6 -4 9 1,907 -9

QNB 25 131.3 -1.1 -5 14 11 2,004 17

Ezdan Real Est. Co. 15 19.9 1.0 -10 -27 154 144 291

Q-TEL 9 103.5 -8.8 10 -5 11 711 -12

Comr‟cial Bk of Qatar 5 68.4 -3.4 -19 -9 9 471 6

Source: Excerpt from Markaz Daily Morning Brief


Disclaimer

This report has been prepared and issued by Kuwait Financial Centre S.A.K (Markaz), which is regulated by

the Central Bank of Kuwait. The report is owned by Markaz and is privileged and proprietary and is subject

to copyrights. Sale of any copies of this report is strictly prohibited. This report cannot be quoted without the prior written consent of Markaz. Any user after obtaining Markaz permission to use this report must clearly

mention the source as “Markaz “.This Report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial

instruments or to participate in any particular trading strategy in any jurisdiction. The information and

statistical data herein have been obtained from sources we believe to be reliable but in no way are warranted by us as to its accuracy or completeness. Markaz has no obligation to update, modify or amend

this report.

This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors are urged to seek financial advice

regarding the appropriateness of investing in any securities or investment strategies discussed or

recommended in this report and to understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each

security‟s price or value may rise or fall. Investors should be able and willing to accept a total or partial loss of their investment. Accordingly, investors may receive back less than originally invested. Past performance

is historical and is not necessarily indicative of future performance.

Kuwait Financial Centre S.A.K (Markaz) does and seeks to do business, including investment banking deals,

with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. For further information, please contact „Markaz‟ at P.O. Box 23444, Safat 13095, Kuwait. Tel: 00965 1804800 Fax: 00965 22450647. Email: [email protected]


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