GCC markets kick off 2014 on strong note

03/02/2014 16:56 AST

GCC equity markets have started 2014 on a strong note, with sentiment continuing to hold up well due to the region's robust macro-economic fundamentals, despite downward pressure on global emerging markets, a report said.

In the coming weeks, fourth-quarter earnings results will be the key driver of market direction, with annual dividend announcements also closely watched, added the Markets Outlook released by Invest AD, an Abu Dhabi government-run financial services company.

Investors will also be looking to see whether market liquidity can remain strong, especially given the recent turmoil in some emerging markets.

Investors in Saudi Arabia should be encouraged by the government budget for 2014, which shows a clear intention to stimulate the economy through increased investment spending of $67 billion, the report highlighted.

This will not only support economic growth but also provide further opportunities to the private sector, through a number of measures to increase citizen employment. These measures, as well as increased unemployment benefits, will undoubtedly have a positive impact on consumption.

The Saudi petrochemical sector is one to watch in the coming months, with a steady recovery in the world's developed economies likely to result in price rises for key products over the rest of 2014.

In the UAE, the economy is likely to continue to strengthen due to Dubai's successful bid to host the Expo 2020, coupled with the Abu Dhabi Government's plans to increase investment spending by $90 billion over the next five years.

Continuing foreign inflows into Qatar ahead of the MSCI upgrade in June and the expected high dividend yields in Qatar and Oman are also positive drivers for investors.

Credit markets

Middle East credit markets have witnessed strong buying momentum since the beginning of the year, with money being put to work by many regional and international investors.

The absence of any new issuance has also helped to keep sentiment buoyant and the first regional issuer this year is scheduled to be Kipco, which was on a road show for a US dollar issuance at the end of January.

Regional banks, private banks, international accounts and other long term investors are providing demand for bonds in every segment of the regional credit curve, the Invest AD report said.

While the banks have focused on the shorter end of the curve to put their liquidity to work, international investors including pension funds and insurance companies have focused more on the longer end of the curve to enhance their returns.

Similarly, private banks have focused on the high-yield segment and the longer-dated subordinated financial names to provide higher returns to their clients. Overall, market yields have compressed between 30-35 points across the curve over the last few trading sessions, according to the report.