Regional Equity Strategy
Equity markets in the GCC remain buoyant as we head into the final months of 2013, with the S&P GCC index recording gains of 17.1% since the start of the year. Our core view has long been that a combination of rising liquidity, elevated consumer and business confidence, fiscal stimuli, loose credit conditions, and healthy growth within the non-hydrocarbon private sectors of the GCC are set to underpin continued advances in equities across the region. We retain our constructive outlook on Saudi, Omani, Qatari, and UAE equities, with a preference for Dubai's DFMGI over Abu Dhabi's ADX.
That said, we note that gains are likely to be harder to come by over 2014 after the heavy advances seen in several markets this year, with valuations now back to multi-year highs. For instance, the Bloomberg GCC200 Index, which groups together the top 200 equities in the region based on market capitalisation and liquidity, now has a price-to-book value of 1.75, compared to 1.64 for the MSCI Emerging Markets Index (although the Dubai Financial Markets General Index, the region's best performer this year, still has a P/B ratio of only 1.16). Moreover, we expect headline real GDP growth in the GCC region to slow slightly next year, averaging 3.7% compared to an estimated 4.1% in 2013 (see 'GCC: Key Themes For 2014', October 11).
In that light, regulatory changes and attempts to improve liquidity will act as important catalysts for further upside over the coming quarters. Kuwaiti officials have recently mooted plans to launch derivatives trading in the first half of 2014. Qatar and Oman have plans for a series of initial public offerings (IPOs), with the Omani government set to offer a 19% stake in Omantel, the country's incumbent operator (see 'Privatisation A Long-Term Imperative', September 27). The Qatar Exchange submitted proposals to the government on October 29 for higher limits on foreign ownership of listed stocks, in a bid to attract liquidity and encourage more IPOs going forward.
|Growth Rates To Slow Slightly|
|GCC - Real GDP Growth, % (Brackets Refer To GCC Average)|