Goldman Sachs says capital cost will hit growth

Dubai: Goldman Sachs revised its ratings and price targets on several stocks in the Gulf Cooperation Council (GCC), citing challenging international credit market conditions during the second half of 2008 that have begun to impact the region.

"We believe that the increase in the cost of capital will have a negative effect on growth in general," Goldman said in a research note to clients.

It, however, added that the outlook for GCC economies was more positive than that for many other regions due to strong fiscal and current account balances, substantial sovereign wealth and high levels of investment.

Emphasis on conserving

In the past month, Gulf central banks and governments have formulated separate responses to the crisis, including guaranteeing deposits, easing lending curbs, setting up emergency funds and pouring money into ailing stock markets.

Goldman noted that companies with the ability to conserve cash were best positioned to ride out the storm until credit conditions improved.

The brokerage said companies with net cash positions on its 2008 forecasts included Emaar Properties, Abu Dhabi National Hotels, Arabtec, Agility, Aramex and Air Arabia.

The stock that stands out as a risk is Tabreed, since it has substantial upfront capital requirements and may face difficulties in increasing its balance sheet leverage, Goldman said.