Mena markets picked up momentum in May

In May, markets in the Middle East and North Africa remain quite strong — Abu Dhabi +9 per cent, Dubai +11 per cent, Saudi +3 per cent, Qatar +6 per cent, Kuwait +12 per cent, Egypt +5 per cent and Oman +5 per cent.

Banking

In Saudi Arabia, Loan growth momentum continued in the month of April with loans increasing 17.7 per cent YoY. The aggregate profitability of the Saudi banking sector increased by 11 per cent year on year based on April data. Many UAE banks tapped bond market by issuing bonds, banks took advantage of excess liquidity and low interest rates. Re-rating of UAE banks continued during May on the back of overall recovery in the UAE economy. In Qatar deposit growth picked up sharply as loans to deposit declined to 102 per cent at end of April 2013. This should reduce margin pressure on Qatari banks.

Petrochemicals

Saudi petrochemical Index rebounded 3.8 per cent in May after a sharp decline of 5 per cent during April, outperforming its general index which was up by 3.15 per cent. Dated Brent crude oil price was down by 2 per cent in May while ethylene price gained 2.7 per cent and polymer price were on average up by 4 per cent. US chemical market remained resilient and European market continued to be muted. While China chemical demand trend remains murky, as of now the May PMI data suggest some strength within the sector.

Real estate and construction

In Saudi Arabia, the real estate & construction segment was up by 9.1 per cent led by Jabal Omar and Dar Al Arkan. During the month, Dar Al Arkan was successfully completed the issue of $450 million (Dh1.65 billion) in a new sukuk which should support the company’s future growth and funding requirements. In Egypt, the real estate sector remained muted in the month of May due to continued political instability in the country. Followed by the announcement of tax settlement with Egyptian Tax Authority in April, OCI NV revised its cash offer to Orascom Construction Industries’ shares to 255 Egyptian pounds per share from its previous offer of 280 Egyptian pounds per share, subject to regulatory approval. The strong monthly performance of the real estate and construction sector in the UAE continued in May, supported by the continued recovery in the real estate market in the country. In the construction segment, Drake & Scull and Arabtec continued to rally in May supported by new project wins and improved market sentiment. During the month, Arabtec received regulatory approval for increasing its capital through rights issue. In Abu Dhabi, Aldar and had stellar performance in May 2013 as the merger between them was nearing.

Telecom

In the telecom segment, the Tadawul telecom index was up in May by 1.9 per cent from the previous month while Saudi Telecom gained 8.3 per cent after reporting continued weakness in share prices throughout YTD 2013. In the UAE, du (+13.3 per cent in May) and etisalat (+10.7 per cent) further extended their gains in May followed by their strong performance in the first four months of 2013. In Qatar, Qtel missed the first quarter 2013 result expectations due to lower revenues from Iraq, Indonesia and Oman. Both etisalat and Qtel have already submitted their binding offers to Vivendi for the acquisition of its 53 per cent stake in Moroctel and said that they might end up acquiring more than 53 per cent as the regulations requires acquiring minority stake as well. In Oman, Nawras missed the first quarter 2013 net profit expectations mainly due to lower EBITDA (Earnings before interest, taxes, amortisation and depreciation) and weaker revenues growth. In Egypt, Altimo’s plan to buy Orascom Telecom (OT) failed as the company was able to get only 16 per cent of shares outstanding based on the tender offer while it was required to get 26.6 per cent of shares outstanding for the purchase to go ahead.

Kuwait and Egypt

The Kuwaiti market gained 4.5 per cent as measured by the market’s weighted index bringing its year-to-date return to 14 per cent. The National Bank of Kuwait which represents roughly 15 per cent of the index gained 3.2 per cent while other stocks such Burgan Bank performed strongly gaining 8.5 per cent during the month of May while performance at Kuwait’s second largest bank retreated by 2.5 per cent over the same period.

Egypt’s equity index gained over the month of May by around 4.7 per cent improving the year-to-date performance to almost flat. On the other hand, the Egyptian pound depreciated a further 2.7 per cent during the same period, bringing the year-to-date depreciation to 9.8. On a macro level, news of funding support from Qatar $3 billion and Libya $2 billion are actually larger than the IMF’s anticipated $4.8 billion but increases moral hazard. The fiscal deficit has deteriorated further recording 10.6 per cent in the first 10 months of the fiscal year 2012/2013.

The writer is Head of Equities, NBAD Asset Management.