The GCC stock markets have never witnessed such a huge gap in their performance, especially that general economic and financial conditions are similar in the GCC member-states. This raises many questions about factors that may affect the performance of GCC financial markets in the future.
With the exception of UAE and Saudi Arabia’s markets that achieved the highest growth rates, the remaining GCC markets have either increased or declined slightly.
In figures, Dubai Financial Market increased by 20 per cent last year, compared to 2011, while Abu Dhabi Securities Exchange rose by 9.5 per cent and Saudi Stock Exchange surged by 6 per cent. Meanwhile, Kuwaiti Stock Exchange increased by 2 per cent and Muscat Securities Market by 1 per cent, while Doha Securities Market and Bahrain Stock Exchange fell by 5 per cent and 7 per cent respectively.
Saudi and UAE economies are considered the largest Arab economies, while the value of Saudi and UAE exchanges constitutes 65 per cent of the total value of the GCC stock markets together, whose total value rose up to $775 billion in 2012, due to the high increase in financial markets in both countries.
The high increase in both UAE’s stock markets is mainly attributed to high share prices of property companies after the real estate sector has been on the recovery path since the beginning of 2012, while the shares of Saudi telecom companies and banking institutions have increased.
Though the Qatari economy achieved the highest growth among GCC economies last year, share prices did not respond positively to this growth as expected. This simply means that factors affecting the performance of GCC stock markets do not mainly depend on the domestic economic performance,
But also depends on other factors related to speculations and external financial crises, such eurozone crisis and the unstable US economy, where all GCC stock markets were affected by these developments last year.
Although the political events in Kuwait and Bahrain affected bourses in both countries, they did not play a decisive role in determining the course of bourses there. The economies of the two countries achieved good growth rates and the financial conditions are also strong thanks to the stability of oil prices at high levels, which in turn led to the stability in the Muscat Securities Market.
If this was the case that distinguished the performance of GCC markets last year, more importantly is the prospects of GCC stock markets in 2013, so as to identify priorities for investors and investment and fund companies.
It seems that all GCC financial markets are expected to rise during this year, if the impact of some factors — that will be referred to later — has become less, noting that the gap between the GCC markets may shrink due to the strong convergence-expected to be achieved with regard to the performance of these markets in 2013.
As for factors that may positively and negatively affect Gulf markets, which must be taken into account, mainly lie in several positive factors, such as dividend distributions by companies for the year 2012, and the expected distributions in Q1 2013 where profits are projected to be rewarding thanks to growing corporate profits, including the profits of companies listed on stock markets with low performance last year, such as Qatari and Bahraini markets.
Among positive factors is the issue of oil price stability at high rates and positive prospects for Gulf economies, which are expected to achieve good growth rates of 4-7 per cent in 2013. This will result in a rise in the performance and profits of companies, as well as the huge increase in in the volume of expenditure in GCC budgets for 2013, which will lead to stimulating non-oil sectors and cash increase in the markets.
Another positive factor is the real estate sector’s continued recovery and low allocations of banks towards debts and obligations as well as their weak association with the eurozone crisis, thus indicating the possibility of higher profits in 2013 and an increase in dividend distributions by early 2014.
But, the negative factors mainly lie in the implications of the impact of the financial crisis in Europe and the United States as well as instability in the Gulf region and the Middle East-factors that had significant effects over the past two years.
In general, the prospects for GCC stock markets are promising with appropriate investment opportunities during 2013. Even more, investment opportunities in Gulf bourses are one of the best in global markets, taking into account prospects for the growth of the Gulf economies and good return on investment.
But, it would even be better if tensions decline in the region and the Eurozone can overcome most of the consequences of its financial crisis — as this will help GCC’s financial markets to improve their performance in 2013.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.