CONVICTION REAFFIRMED IN GCC EQUITIES AND BONDS

Saudi and UAE IPOs are in the offing

04/09/2014 12:56 AST

The announcement by Emaar Properties that it would divest 15% or more in a public equity issue in its mall subsidiary is boosting investors’ risk appetite in UAE stocks and there is a strong likelihood KSA largest lender National Commercial Bank will announce an even larger IPO in October 2014. The estimated value of the Emaar Malls IPO is AED 5 bn. (USD 1.36 bn.), which is sizeable for the UAE market, which has a capitalization of AED 789 bn. (USD 215 bn.).
The Saudi Arabian TASI was the best performer among GCC equity indices as it surpassed the 11,000 mark, with the announcement of the Saudi market opening up to direct foreign investments. Expectations of strong global demand for petrochemical stocks supported the uptrend. We expect continued interest in large-capitalization sectors i.e. financial services and petrochemicals. Rotation into laggards can also be seen, with interest in Al Rajhi Bank and SIPCHEM building up as investors go bargain-hunting. The Saudi Arabia Monetary Authority (SAMA) has released an updated set of regulations for domestic banks lending to consumers. These new rules may result in a surge of consumer loan growth that has been declining over the past few quarters; improving Saudi demographics should provide support as well.
After rising 2% in the previous week, the Qatari index retraced its gains as passive fund managers completed their portfolio adjustments prior to the MSCI Emerging Market Index rebalancing date (end August).

More countries issue Sukuk bonds
Fixed income benchmarks gained globally for the month of August, as muted growth in Europe and geopolitical tensions whetted appetite for the asset class. Yields on US 10-year treasury notes fell to 2.34%, German yields to 0.7%, with Eurozone deflationary trends becoming more entrenched. Junk bonds gained as well after the recent underperformance. As long as central banks keep flooding markets with liquidity against the backdrop of subdued global growth, bond yields are expected to persist at multi-year lows.
US treasuries currently continue to offer more value than European government bonds, while UK gilts have slightly higher yields, but bear more currency risk.
In GCC and emerging markets the pipeline of debt issuance looks strong for the month of September. Specifically we expect strong demand from global Islamic debt funds for the limited Sukuk supply. These instruments are higher yielding than developed market government bonds and offer relative safety being asset-backed. Next month issuers include: Kingdom of Bahrain, Burgan Bank (Kuwait), Republic of South Africa (Sukuk), Government of Hongkong (Sukuk), ICBC (Industrial and Commercial Bank of China).
Confluence of positives boost India equities
Indian GDP grew 5.7% annualized in 2Q 2014, the highest since December 2011. The agricultural, manufacturing and electricity segments led the rebound. Improved sentiment and confidence in the new Government pushed the Indian SENSEX to all-time highs. There is faith in the ability of the new government to up the ante on reforms, kick start capex and improve project execution, resulting in higher growth rates from 2015 onwards. This is accompanied by a favourable backdrop of abating inflation trends.
Central banks to play a large role until uncertainty on global growth is dispelled Investors are witnessing continued central banks’ intervention worldwide to support an otherwise sputtering business cycle. The flow of liquidity – lifting all boats – makes for a positive setting in GCC markets as well.
Although the US Fed is on course to wind down 'Quantitative Easing' (QE) in October 2014 due to comforting economic trends – US Q2 GDP was revised higher to 4.2% and investors celebrated by pushing the S&P500 past the 2,000 level - it is evident from the latest FOMC minutes there is no agreement among its members to raise rates anytime soon.

Press Release - ENBD