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Good macro trends and IPO revival support GCC markets –report

Good macro trends and IPO revival support GCC markets –report
The IMF has upgraded UAE GDP growth for 2014 to 4.4%, citing rising property prices and infrastructure development linked to Dubai’s World Expo exhibition in 2020, report said.
CIO office at Emirates NBD Wealth Management stated in a recent report, the strength of the real estate sector is attested to with strong corporate earnings announced by Dubai government-owned Nakheel.
Momentum in the UAE equity market – up 5% for the week – is sustained by higher than average trading volumes and is seen to continue, interrupted only by the usual Spring / Summer volatility.
Another UAE IPO has been announced focusing on retail fashion stores, new restaurants and cafes. In what is seen as a repeat of the equity market boom years 2004 and 2005, a number of large upcoming IPO’s in the GCC markets are expected.
Given a favourable macro-economic backdrop, we do not expect significant setbacks to the equity market in the short-term. Occasional market liquidity squeezes would offer a good opportunity to enter or add on dips to quality growth stocks for the longer term.
The summer – usually marked by lower volumes and higher volatility – could also provide potential entry points to investors looking to get equity exposure.
In the shorter term investment in dividend yielding stocks – April and May being the typical payout months – could yield some upside. In Saudi Arabia, SABIC has two cash pay-outs in April and July, Al Rajhi, ADCO, Al Khaleej, SPIMACO and Budget pay stock and cash dividend in the next 3 months, Riyadh bank has a 100% stock dividend payout in May and a number of other stocks have pure cash dividends.
As Qatar and the UAE are withdrawn from the MSCI Frontier Markets Index and included in the MSCI EM index in early June 2014, Kuwait’s weighting in the MSCI Frontier Markets index would likely increase to 28.5%. Kuwaiti stocks could therefore offer upside based on higher inflows from frontier market funds.
In developed markets (DM), the S&P500 closed down 2.9% for the week – in spite of evidence of a dovish stance by the Federal Reserve Bank (FED) – with weak earnings from bellwether stock JPMorgan and highly-valued technology stocks selling off. Next week 20% of companies are slated to report and this would provide the direction for US and global equity markets, which we expect to be range-bound over the summer months.
Exceptionally low inflation in Europe, with March 2014 inflation at 0.5% on the year, is very much below the 2% European Central Bank (ECB) target. The ECB will most likely aim to create negative deposit rates for banks depositing excess cash with the ECB, or Long-Term-Refinancing-Operations which would make cheap money even cheaper.
Either way the ECB unconventional intervention would be a further stimulus for equity markets. Although loose policies would tend to weaken the European currency, we see European equities emerging as a favorable proposition for dollar-based investors.
On the back of dovish Fed minutes and generalized risk-off sentiment in global financial markets, US 10 year treasuries strengthened 10 basis-points. A bounce in high-beta sovereigns occurred in the EU periphery as well as in some emerging markets. Greek sovereigns led the outperformance last week strengthening 22 bps to yield 5.81 %. Greece returned to the bond markets on even better terms: it managed to price an €3 bn, 5 year Hellenic Republic bond at a coupon of 4.75 %; order books exceeded €20 bn. Turkey also managed to price an €1 bn, 9 year sovereign bond at 4.20%.
The new issuance coincides with a revival of the global ‘carry trade’ as investors hunt for yield in emerging bond and credit markets. The Islamic Republic of Pakistan returned and tapped markets with a dual tranche – 5 and 10 year maturities – of $ 1 bn each yielding 7.25% and 8.25% respectively. The last issuance by this sovereign was in 2007.
Oil India and the State Bank of India also sold dual tranche bonds in the 5 and 10 year maturity space. Abu Dhabi's Mubadala has hired six banks to lead-manage a new Eurobond issue. Mubadala itself was last in the market in April 2011 through a $1.5 billion five- and 10-year bond issue.
The commodity market saw palladium prices rise above the key 800 USD per ounce level, which opens the way to our next target price of USD 850 per ounce in the medium term. Safe-haven buying pushed gold to USD 1,320/oz. but we continue to hold the view that eventually a re-test of USD 1,200/oz. can be expected.