GCC markets 2022: The year of transformation
This is the year when GCC financial markets make moves that would take some from frontier to emerging market status.
Others will attempt to consolidate their image as going from emerging to strong emerging or even advanced markets.
Numerous IPO listings will play a big factor in this.
And while each GCC country is governed by its own set of budgetary circumstances, Arab financial markets as a whole are witnessing a period of robust performance.
Stock market sector strength
The GCC financial markets gained for the second consecutive month during January, according to a report by Kamco Invest.
The MSCI GCC index gained 7.4% percent with Saudi registering the largest monthly gain at 8.8 percent followed by Qatar and Kuwait with 7.5 percent and 4.4 percent in gains, respectively.
Crude oil prices rising to $90 levels also supported markets in the region, said Kamco.
In terms of sector performance, Banks led with a gain of 8.5 percent as early earnings reports showed falling impairments and higher profits during the last quarter of 2021.
Meanwhile, Kuwait Financial Centre “Markaz” recently released its Monthly Market Review report for the month of January 2022.
Regionally, the S&P GCC composite index rose by 7% as oil prices grew. All GCC markets gained for the month. Saudi Arabia, Qatar, and Kuwait were the biggest gainers among GCC, rising 9.0%, 7.5%, and 4.4% respectively. Abu Dhabi gained 2.5%.
Exciting times for GCC markets
These are exciting times for local exchanges. In early November 2021, Dubai revealed plans to launch a $545 million market-maker fund and initial public offerings.
Listed companies in the GCC region saw their financial earnings hit a record high of $55.5 bn in Q3 2021, more than double on a year-on-year (y-o-y) basis.
Keeping the pandemic under control was key in bringing the majority of economic sectors back at pre-COVID-19 levels except for tourism and hospitality, still hampered by travel restrictions.
The energy sector profits in the region reached $29.7 bn in Q3.
The banking and finance sector also generated higher profits during Q3, reaching $9.6 bn, while the transport sector generated a net profit of $3.34 bn.
The real estate sector saw a 41% and 219% increase in returns and profits, respectively.
GCC markets outlook optimistic
In a recent op-ed, Mohieddine Kronfol, Chief Investment Officer at Franklin Templeton Global Sukuk and MENA Fixed Income saw several reasons for being optimistic about the outlook for the GCC.
The GCC emerging market, he believes, could protect portfolios from fiat volatility and rising global inflation.
Global growth was uneven while some emerging markets failed to properly deliver as a result of policy missteps or vaccination delays, Kronfol opined.
“Structural reform in the GCC continues to surprise, with the most recent announcements around the UAE’s 50th anniversary encouraging.
The rebound in oil prices certainly helped budgets, current accounts, and sovereign bond issuance,” Kronfol said.
With oil prices just above $90 per barrel, GCC oil producers will increase government investments and improve growth outlooks.
This strength in oil prices is a top factor that insulates the GCC emerging markets from inflationary risks.
Other factors include GCC economic and social reform agendas as well as growth initiatives aimed at attracting talent and investments.
Kronfol said “$120 billion in (bond) issuance and 20%-30% of emerging market sovereign dollar issuance is possible. There will likely be some decline in sovereign issuance with improved budgets.
However, healthier growth and massive renewable energy targets should fuel additional corporate and energy issuance.”
He warns “..as prices of bonds in an investment portfolio adjust to a rise in interest rates, its value may decline.”
“Stock prices fluctuate, sometimes dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.”