Amidst muted growth expectations in the global markets, economic outlook for GCC region as a whole remains positive. It is expected that the surge in oil revenues and fiscal reforms of yesteryears will provide necessary cushion to GCC countries to support economic growth through capital expenditure, according to analysts at Marmore Mena Intelligence.
‘GCC 2019 Outlook’ released by Marmore yesterday noted Qatari market performed contrary to Maramore’s expectations in 2018, bouncing back by 20.8 percent, as Qatar successfully overcame the effects of the diplomatic standoff, which was initially expected to have a bearing on the country’s economy. Most of the sectors had a positive year with Banks and Financial Services; and Consumer Goods and Services registered the highest growth of 43 percent and 36 percent, respectively.
The analysts noted Qatar’s banking sector remained healthy overall, reflecting high asset quality and strong capitalization. Quick establishment of alternate trade routes and the support lent to the banking system through the injection of government deposits helped the economy to stage a turnaround.
Marmore’s four-forced outlook that includes economic, corporate earnings potential, valuation attraction and market liquidity for individual countries noted that although the recovery in oil prices did not last the entire year in 2018, the regional economies witnessed considerable increase oil revenues. Their fiscal external balances started to recover after lacklustre year.
Growth in corporate earnings is expected to witness an uptick in the GCC during 2019 with the exception of Bahrain and Saudi Arabia. Banks will be primary growth drivers, as the sector is expected to see a rise in profitability and credit growth due to tailwinds such as rising interest rates and new infrastructure projects.
Commodity related companies are likely to see their earnings drop due to the fall in oil prices while the construction sector is expected to mildly rebound after years of underperformance.
From a valuation perspective, GCC markets, except two, remains at attractive levels. As earnings are expected to remain flat for Saudi Arabia’s stocks, it becomes difficult to justify their premium valuations.
Qatar is expected to undergo some sort of consolidation in 2019, after witnessing a rally during the second half of 2018. Market liquidity remains to a pain point for GCC equity markets as institutional and foreign investor participation continues to remain low, weighed down by geopolitical concerns.
On the region’s fixed income market, the analysts said JPMorgan’s decision to add Qatar, UAE, Saudi Arabia, Bahrain and Kuwait’s sovereign bonds to its Emerging Market Bond Index (EMBI) would potentially bring up to $60bn of active and passive inflows.
“The investment scene in the GCC is likely to enjoy optimistic mood as we progress into the initial months of 2019”, said M R Raghu, Managing Director, Marmore Mena Intelligence.
Source from: The Peninsula