Kuwait – Mubasher: While GCC regional stock markets fared worse than their international counterparts, equities in general were thrashed in 2015 as total GCC market capitalisation stood at $904 billion at year end, after shedding $200 billion during 2015, National Bank of Kuwait (NBK) said in a report posted Tuesday.
For the GCC region, lower oil prices remained the main driver of markets. Oil prices and GCC equities have moved largely in tandem since oil prices started retreating in the second half of 2014. The relationship has been far from symmetrical, with correlations increasing notably whenever oil prices took a dive, it added.
With the exception of the large petrochemical sector in the Saudi stock market, GCC equities have little direct exposure to oil prices, though of course oil dependence pervades the GCC economies, said the report.
Furthermore, low oil prices raised concerns about fiscal sustainability and growth in regional economies. While GCC governments have expressed their commitment to support growth in the non-oil sector by sticking to their current development spending plans and maintaining large deficits in the medium term, a prolonged period of low oil prices could force governments to reduce capital spending and benefits, and could put pressure on liquidity, said the report.
NBK also said the issuance by the Saudi government of $28 billion in bonds in 2015 to finance the fiscal deficit served as a reminder of these concerns. Markets in the region continued to be pressured by a number of domestic and market specific factors. In the UAE, worries about an imminent correction in property markets continued to make headlines. In Qatar, the possible threats to the 2022 World Cup remained a concern, albeit a remote risk. In Kuwait, with stock market liquidity remaining below historic averages and equities trading well below book value, several companies listed on the Kuwait Stock Exchange requested to delist, though the companies in question were all relatively small and had little impact on market capitalisation.
According to the report, the GCC saw some positive events take places, but these were largely overshadowed by market volatility. In June 2015, Saudi Arabia opened up the market to direct foreign equity ownership, though only to qualified investors. This and other developments, such as the inclusion of KSA stocks in popular international indices and changes to trading and ownership restrictions, should continue to impact the Saudi market. Qatar also benefited from increased foreign investor interest with the upgrading in late 3Q15 of the equity market to "Emerging Market" status by FTSE. In Kuwait, the CMA issued the final amendments to its bylaws late in the year, a step generally seen as positive for the market.
All GCC markets ended the year in the red. Saudi Arabia and Dubai were the worst performers, down 17% each. Despite a stellar performance earlier in the year, on the back of the decision to open up the market to foreign investors, Saudi equities were weighed down by further decline in oil prices. Dubai, with a larger foreign investor base, is typically more exposed to international factors (including oil prices). Qatar, Oman and Bahrain were each down 15% in 2015. Kuwait's value-weighted index was down 13% on the year and Abu Dhabi outperformed the region with a smaller decline of 5%, said the report. Regional markets are likely to continue to be moved by a number of regional and global factors in the coming months.
