Markets Back in the Red - Market Review

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

Markets Back in the Red GCC markets retrace some gains

April 2012 Returns1 (%)

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

-0.36 -1.01 -2.11 -3.20

The World broad index was down 1% in April mainly due to concerns on sluggish global recovery. The Nikkei 225 which was the top performing

market in March (+3.7%), lost 5.2% in April. Shanghai almost reversed its

March losses (-6.8%) by gaining 5.9% in April.

Mixed economic signals weighed heavily on the markets in April, as European debt problems resurfaced with S&P downgrading Spain‟s credit

rating by two notches to BBB+. The IMF‟s doubling of lending capacity, to the nations, to the tune of $430bn failed to cheer the markets for long.

The IMF in its latest World Economic Outlook study, forecasted global growth to be at 3.5% this year, and accelerating to 4.1% in 2013. The

forecasts were a slight upgrade from its January forecast of 3.3% and 4.0%, respectively.

According to preliminary data, the US economy expanded 2.2% in the first quarter, slower than the 3% during 4Q11. UK painted a gloomy picture

with economy contracting 0.2% in Q1 2012 after a 0.3% contraction in the previous quarter. China‟s 1Q GDP growth of 8.1% was less than the 8.9%

growth registered during the previous quarter.

GCC markets were down in April, losing 3.2% following an increase of 6%

in March and 7.6% in February. Saudi Arabia dragged the markets, losing 3.6% for the month while it is up 18% YTD. Qatar, which lost 1.2% in April,

was the only GCC market with a YTD loss. Oman remained in the green, and witnessed a 3.2% gain last month.

Volume was down 25% MoM in the GCC and Value Traded also decreased 18% to USD 77bn. Bahrain (-70%) witnessed the largest drop in liquidity

over the month and Saudi Arabia which accounted for 91% of GCC‟s total value traded registered an 18% drop.

Risk in the GCC (as measured by the Markaz Volatility Index – MVX) was up 38% in April. Risk in Saudi was up 48% for the month while MVX Abu Dhabi

shed 44%.

Valuations have remained in a steady range as markets trade sideways with most countries near in the 10x-15x range.

1 All April Returns are calculated from the 29th of April 2012, closing values

May 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

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Head of Research +965 2224 8280

[email protected]

Layla Jasem Al-Ammar

Assistant Manager +965 2224 8281

[email protected]

Madhu Soothanan

Senior Research Analyst +965 2224 8000 Ext: 4603

[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

mailto:[email protected]



R E S E A R C H May 2012

Kuwait Financial Centre “Markaz”

2

Global Markets Review – April 2012

World markets were mostly negative driven by mixed economic signals.

Crude oil slipped nearly 2.5% to $119.8/bbl as US and UK reported weak economic numbers; CRB Commodity index was also down 0.96% while

CBOE VIX increased 5%.

The World broad index was down 1% in April mainly due to concerns on

sluggish global recovery (Figure 1). The Nikkei 225 which was the top performing market in March (+3.7%), lost 5.2% in April. Losses were seen

across Developed and Emerging Markets. Shanghai almost reversed its March losses (-6.8%) by gaining 5.9% in April, on hopes of monetary

easing and higher government spending after a lower than expected first

quarter GDP growth.

Figure 1: Monthly Returns – April 2012 (%)

On a YTD basis, Nikkei rules the bunch with a gain of 13% followed by S&P 500 which is up 12% for the year. MSCI EM, Asia Pac Ex Japan and India

have also delivered double digit returns this year while the UK and Frontier Markets continue to lag.

Figure 2: Price Returns – YTD (%)

The World broad index was

down 1% in April mainly due

to concerns on global recovery

On a YTD basis, Nikkei rules

the bunch with a gain of 13%



3

World

According to data released by Bureau of Economic Analysis, the US economy expanded 2.2% in the first quarter slower than the 3% during

4Q11. Analysts believe the drag is mostly due to decrease in government

spending. All components of government spending showed a decrease (National Defense, non-defense, federal, state or local). The Fed, after its

April FOMC meeting decided to keep the target federal funds rate between 0% and 0.25% through 2014 and did not undertake any new monetary

initiatives.

In the Euro area, Spain‟s rating was cut from „A‟ to „BBB+‟ by S&P on concern that Spain will have to provide further fiscal support to the banking

sector as the economy contracts.

Meanwhile, preliminary numbers showed that UK technically fell into a

recession after its GDP decreased by 0.2% in Q1 2012 after a 0.3% contraction in the previous quarter. Italy also revised its 2012 growth

forecast to -1.2% from -0.4% earlier and said it will miss its target for balancing the budget by 2013.

S&P revised its outlook on India from „Stable‟ to „Negative‟ due to slow fiscal

progress and deteriorating economic indicators. China reported 1Q GDP growth of 8.1%, compared to 8.9% during the previous quarter. China‟s

industrial output grew 11.6% YoY in the first quarter. Its exports and

imports rose by 8.9% and 9.8%, respectively, in Q1, resulting in a trade surplus of $670mn.

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 UK is technically back in a „recession‟ after two

consecutive quarters of GDP contraction



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 – April 2012 GCC markets were down in April, losing 3.2% after an increase of 6% in

March and 7.6% in February. Saudi Arabia dragged the markets, losing 3.6% for the month while it is up 18% YTD. Qatar, which lost 1.2% in April,

was the only GCC market with a YTD loss. Oman remained in the green,

and witnessed a 3.2% gain last month.

Market Indicators

Indicators M. Cap

(USD Bn) Last Close Monthly

Return % YTD % 2011% P/E TTM

Saudi (TASI) 395 7,556 -3.57 17.73 -3.07 13

Kuwait SE WT.INDEX 105 416 -0.99 2.57 -16.89 15

Qatar(Doha SM) 98 8,688 -1.17 -1.04 1.12 9

Abu Dhabi (ADI) 75 2,512 -1.60 4.57 -11.68 8

Dubai (DFMGI) 51 1,639 -0.57 21.14 -17.00 10

Bahrain (BAX) 17 1,149 -0.34 0.42 -20.15 8

Oman(Muscat SM) 14 5,871 3.18 3.08 -15.69 13

S&P GCC Composite Index 257 102 -3.20 11.03 -8.47 12

Source: Excerpt from Markaz „Daily Morning Brief‟ April 30th , 2012

The IMF‟s latest World Economic Outlook predicted economic growth in the

MENA region to accelerate to 4.2% this year from 3.5% in 2011. The GCC

economies are expected to grow by 5.3% in 2012 with current account balance of 25% of GDP and overall fiscal balance of 15% of GDP.

Meanwhile, IIF estimates GCC growth to moderate from 6.9% last year to

4.9% in 2012, and a likely 4.2% in 2013.

Saudi Arabia

The IMF, in its latest Financial Sector Assessment Update on Saudi Arabia stressed that the country‟s Banking Control Law needs urgent updating to

include new provisions to give the Saudi Arabian Monetary Agency (SAMA)

greater operational independence.

SABIC reported a net profit of $1.93bn in 1Q12, a decrease of -5.5% YoY, due to lower product prices and higher feedstock costs. SABIC also

announced that its Sinopec JV, to build a new polycarbonate plant with an annual capacity of 260,000MT will cost $1.7bn. SABIC lost 5% for the

month.

Al Rajhi Bank‟s net profit was up 18% YoY in 1Q12 to $536mn while Samba

Financial Group‟s first quarter earnings came in at $305mn, a growth of 2% YoY. Al Rajhi and Samba Financial stocks were down 5.4% and

8.4%, respectively.

Saudi Telecom‟s 1Q12 net profit surged 60% YoY to $671mn as it added

more mobile & fixed broadband customers. Saudi Electricity Co‟s 1Q loss narrowed to $156mn. Saudi Telecom was up 3.2% for the month

while Saudi Electricity Co. lost 14.4%.

Saudi Arabian Mining Co. is talking with a number of banks for securing

Islamic loans worth up to SAR 7bn ($1.86bn) to finance future projects.

GCC markets reversed in

April, losing 3.2%

IMF expects GCC economies

to grow by 5.3% in 2012 with an overall fiscal balance of 15% of GDP



6

United Arab Emirates The Dubai government launched a $1.25bn two-tranche Sukuk, backed by

real estate assets. The $600mn 5yr tranche was launched at 4.9% and a

$650mn 10yr tranche was at 6.45%.

Aldar Properties has signed a AED 4bn ($1.1bn), 3 year revolving credit facility with NBAD to fund operations and meet liquidity requirements.

Aldar‟s 1Q12 net profit more than doubled to $130mn. The stock shed 6% for the month.

ETISALAT reported a flat 1Q bottom-line of $493mn due to higher operating expenses. ETISALAT lost 1.7% for the month. Emaar Properties saw its

1Q net income increase by 44% to $165mn as they sold more properties in Dubai. The stock gained 7.6% for the month.

National Bank of Abu Dhabi‟s net profit was up 12% YoY in 1Q12 to

$283mn while Emirates NBD reported 55% drop in earnings to $175mn.

NBAD was almost flat for the month while ENBD shed 7.5%.

Kuwait Kuwait's National Assembly rejected a draft bill on the KWD 30bn ($108bn)

development plan as opposition MPs accused the government of failing to make progress on major investments it provides for. Meanwhile, Kuwait‟s

current account booked a surplus of KWD 19.5bn ($70.3bn) in 2011, an increase of 78% over 2010.

Moody's stated that the outlook on Kuwait's banking system remains stable, reflecting a recovery in profitability and a supportive operating environment,

characterized by high government spending.

Burgan Bank entered an agreement to acquire 99.26% stake in Eurobank Tekfen (Turkish arm of Eurobank EFG) in a KWD 99mn ($355mn) deal.

Burgan Bank will also absorb $280mn of loans issued by EFG to the Turkish

unit. Burgan gained 1.2% in April.

National Bank of Kuwait received central bank approval to increase its stake in Boubyan Bank from 47.29% to 60%. Meanwhile, Boubyan Bank signed a

contract to sell part of its investment in Bank Muamalat Indonesia for about KWD 9.6mn ($34.6mn). Boubyan is up 9% for the month.

National Bank of Kuwait reported a flat set of numbers in 1Q12 with net income coming in at $292mn while Kuwait Finance House (KFH) reported a

11% drop in net profit to $72mn. NBK was down 2% for the month while KFH shed 6.4%

Qatar

Moody's has a stable outlook on Qatar's banking system, reflecting strong

macro environment and high public spending levels that will continue to sustain growth and bank lending activity over the 12-18 month period.

Qatar National Bank obtained regulatory approval from Iraqi central bank to

increase its stake in Iraq's Mansour Bank to 51%, from 23%. QNB also said

it would acquire 49% of Bank of Commerce & Development in Libya. QNB‟s net profit was up 17% in 1Q to $549mn. The stock has shed 1.2% for

the month.

Industries Qatar reported a feeble 1Q12 with net profit coming in at $527mn (-5% YoY) due to lower realizations as its petrochemical division.

The stock gained 4% for the month.

Kuwait National Assembly rejected a draft bill on the

$108bn development plan

Volume was down 25% in the GCC while Value Traded

dropped 18% to USD 77bn



7

Liquidity, Risk & Valuation

Volume was down 25% MoM in the GCC and Value Traded also decreased

18% to USD 77bn. Bahrain (-70%) witnessed the largest drop in liquidity over the month. Saudi Arabia accounted for 91% of GCC‟s total value traded.

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

38% in April. Risk in Saudi was up 48% for the month while MVX Abu Dhabi shed 44%.

Valuations have remained in a steady range as markets trade sideways with

most countries near in the 10x-15x 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 – April 2012) – GCC Vs Developed & EM

Figure: 20 – Comparative MVX Levels – April 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%

-15%

-10%

-5%

0%

5%

10%

15%

20%

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: 24 - Kuwait Rates

Figure 23: Dubai CDS 5 yr

Apr-12, 341

404

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

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

(%)

45% 91% Saudi Arabia 12,265 6,258 -18% 69,673 37,031 -18%

30% 3% Kuwait 8,261 4,931 -20% 2,680 1,950 -21%

21% 3% UAE 5,781 4,305 -42% 2,234 1,492 -34%

1% 2% Qatar 251 167 14% 1,837 1,576 4%

2% 0% Oman 596 223 36% 313 181 10%

0% 0% Bahrain 22 44 -60% 8 21 -70%

Total GCC 27,177 15,927 -25% 76,746 42,251 -18%

Source: Markaz Research

Data Table: 2 - Value traded (USD Bn)

2004 2005 2006 2007 2008 2009 2010 2011 2012

Saudi (TASI) 473 1103 1403 682 522 338 202 291 252.2

Kuwait (KSE) 51 97 60 131 134 75 44 22 11.5

Abu Dhabi (ADX) 4 29 19 48 83 19 9 7 2.4

Dubai (DFM) 14 110 95 103 63 48 19 9 7.4

Qatar (DSM) 6 28 21 30 47 26 19 23 6.5

Oman (MSM) 2 3 2 5 9 6 3 3 1.0

Bahrain (BAX) 0.4 0.6 1.4 0.9 2.2 0.48 0.29 0 0.1

Total 550 1371 1601 1000 860 512 296 354 281

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 82 102.8 -4.9 7 -8 11 7,271 -5

Al-Rajhi Bank 31 78.3 -5.4 13 -16 16 2,011 18

Saudi Telecom 22 42.1 3.2 25 -21 10 2,521 60

Saudi Electricity Co. 15 13.7 -14.4 -1 -1 24 -583 NM

Samba Fin. Group 12 52.0 -8.4 12 -24 11 1,145 2

United Arab Emirates (AED)

ETISALAT 19 8.7 -1.7 -4 -15 12 1,809 -0.5

NBAD 9 8.7 0.1 9 12 9 1,041 12.2

First Gulf Bank 7 9.0 -7.4 16 -11 7 935 6.8

Emirates NBD 4 2.8 -7.5 -4 7 9 641 -54.6

Emaar Properties 5 3.3 7.6 27 -28 10 717* 162

Kuwait (KWD)

ZAIN 11 0.7 -9.9 -19 -41 11 75* -14

NBK 17 1.1 -1.9 4 -14 15 81 0

KFH 8 0.7 -6.4 -12 -16 26 20 -11.4

Gulf Bank 4 0.4 -4.3 -9 -11 37 31* 252

Comm. Bk. Kuwait 4 0.8 0.0 0 -14 NM -7* NM

Qatar (QAR)

Industries Qatar 22 146.2 4.1 10 -4 10 1,907 -9

QNB 26 133.5 -1.2 -3 14 11 2,004 17

Ezdan Real Est. Co. 14 19.4 -2.5 -13 -27 67 144* NM

Q-TEL 9 138.0 2.2 27 -5 12 603* 33

Comr‟cial Bk of Qatar 5 71.6 -6.8 -15 -9 9 471 6

*4Q11 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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Markets Back in the Red - Market Review