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Economies in the Gulf Cooperation Council (GCC) region Image Credit: File photo

Dubai: GCC economies and markets are in the middle of an early cycle of recovery compared to its counterparts in the developed markets, meaning potential value for investors, according to Salah Shamma, Head of Investment, Mena, Franklin Templeton Emerging Markets Equity.

GCC GDP growth has been on a expansionary mode posting strong growth in 2018 and 2019, after hitting a trough in 2017. Economically, Saudi Arabia has embarked upon a capex plan, along with reinstating bonuses and raises, boosting confidence among consumers. Saudi Tadawul index has been the best performing regional index with 19 per cent gains seen so far in the year.

“We believe that the GCC is in the middle of an early cycle of recovery looking at GDP numbers unlike rest of the developed world. We are just starting to come out of the down cycle, and fortunately it is happening at a time when the US Fed has decided to suspend interest rates, which is going to support our economic growth,” Shamma told journalists.

GCC economies are expected to grow by 3 per cent in 2019, compared to 2.4 per cent in 2018. GCC underwent a recession in 2017 with negative growth.

“This growth will materialise in corporate earnings. We are starting to see recovery in earnings. We expect 2019 earning growth to be at similar magnitude in 2018. Analysts forecasts have been on the rise. This is a strong sign of a recovery, and this is a positive for the market,” Shamma said.

As far as Saudi Tadawul is concerned, Franklin Templeton expects $35 billion of passive inflows to come into the market due to the MSCI inclusion. A total of $4.6 billion has already entered the market ever since Tadawul index was kept in a watch list, resulting in 35 per cent gains on the gauge.

Foreigners currently own only 2.2 per cent of the Tadawul.

Kuwait index may get added to the MSCI emerging market index by June, he said. “We expect $2 billion in passive flows into Kuwait should it be upgraded by the MSCI,” Shamma added.