market review 13022012

Kuwait Financial Centre “Markaz” R E S E A R C H

Greenish Beginning to the Year UAE and Saudi lead GCC gains

January 2012 Returns (%)

S&P 500 MSCI World MSCI EM S&P GCC

4.4 4.9 11.2 1.6

World markets began the year in the green due to positive signs from the US economy, where unemployment fell to a three-year low of 8.3%, in

addition to optimistic signals out of Europe. Crude oil was up 3.35% while

the CRB Commodity Index increased 3.52%. Risk is declining as CBOE Vix shed 17% while the Ted Spread was down 35%.

The World broad index was up 5% for January mainly on strength from

Emerging Markets which were up over 11%. The lowest gain was seen in Frontier Markets which were up half a percent.

The situation in the Eurozone remains tenuous, despite some agreements made; unemployment continues to rise across the continent, coming in at

10.4% in December, while Money Supply growth has decelerated to 1.6%. Furthermore, Greece continues to struggle to obtain a $170bn bailout by

attempting to pass increasingly unpopular austerity measures.

Asia continues to show signs of slowing down in 2012. India is expected to

see economic growth of about 7% for the year versus 8.4% a year earlier. China‟s efforts to cool its economy may be exacerbated by Euro-area woes;

GDP growth for 2012 is at 8.2% (IMF), down from around 9% this year, but could be significantly lower.

The GCC extended gains in January, up 1.6% following a 2.55% gain in December; positive performance was again boosted by Saudi Arabia, which

was up 3.25%. The UAE also saw a positive month with the DFM surging 6% while Abu Dhabi was up 2.15%. Qatar and Oman posted the largest

declines, losing about 2.4% each for the month.

Liquidity expanded in the first month of the year; GCC value and volume

traded increased 23% and 49%, respectively, with trading valued at $46bn. Trading was led by Saudi Arabia and Kuwait where value traded was up

31% each, while volume in Kuwait nearly doubled.

Risk in the GCC (as measured by the Markaz Volatility Index – MVX) was up

67% in January led by MVX Qatar which was up 88%. Oman and Bahrain were the only markets to see declines in risk, down 33% and 40%,

respectively.

Valuations have remained in a steady range as markets trade sideways with

most countries in the 10x-15x range.

February 2012

Research Highlights:

Review of global and regional stock markets for the previous

month

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Fax: +965 2242 5828 markaz.com

R E S E A R C H February 2012

Kuwait Financial Centre “Markaz”

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Global Markets Review – January 2012

World markets began in the green due to positive signs from the US

economy and optimistic signals out of Europe. Crude oil saw a gain of 3.35% to $110.98/bbl while the CRB Commodity Index was up 3.52%.

CBOE Vix shed 17% while the Ted Spread was down 35%.

The World broad index was up 5% for January mainly on strength from

Emerging Markets which were up over 11% (Figure 1). The lowest gain was seen in Frontier Markets which were up half a percent and the FTSE 100

which gained 2%.

Figure 1: Price Returns – January 2012 (%)

World

The US economy continues to show signs of recovery. The unemployment

rate fell to 8.3% in January, its lowest rate in three years as the labor market continues to improve. The housing market has bottomed out with

the NAHB Housing Market Index continuing to rise month on month. GDP growth was less than expected in 4Q, coming in at 2.8%, slightly lower

than market expectation of 3%, but higher than 3Q growth of 1.8%. For

the full year 2011, GDP growth came in at 1.7%, down from 3% in 2010. The Fed announced plans to keep monetary policy loose, with rates

remaining low through 2014, while keeping the option open on addition purchases.

However, the situation in the Eurozone remains tenuous; unemployment continues to rise across the continent, coming in at 10.4% in December,

although unemployment in Germany continues to fall, declining to 6.7% in January. Money Supply growth decelerated to 1.6% in December while

lending slowed considerably, down over 4% among consumers. The European Summit produced agreement on a Treaty amendment which sets

the maximum structural deficit at just 0.5% of nominal GDP, a target that

will require substantial fiscal tightening.

Greece continues to struggle in its efforts to attain a $170bn bailout by negotiating debt write-offs with private creditors and passing additional

deficit cuts amounting to 1.5% of GDP through cuts to the minimum wage,

lower pensions and staff reduction. Such harsh austerity measures, which call for a 150,000 employee reduction by 2015, have brought about wide-

The World broad index was up 5% for January mainly on

strength from Emerging Markets

The US economy continues to show signs of recovery.

Monthly returns were negative across the board



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spread strikes and protests across the country. Talks with private creditors revolve around a possible 70% loss for bondholders through a debt

exchange that would cut debt in half. Greece has a $19bn bond payable at

the end of March.

According to Citigroup, there is now a 50% chance that Greece will be forced to leave the Euro within the next 18-months.

Asia continues to show signs of slowing down in 2012. India is expected to see economic growth of about 7% for the year versus 8.4% a year earlier.

Slow growth has been attributed to Central Bank tightening in addition to the European debt crisis which has caused an exodus of foreign investors.

Manufacturing growth in 2011 is expected at about half the 2010 rate of

7.6%. The Indian Rupee declined 16% against the US Dollar in 2011, making it the worst performing currency.

China‟s efforts to cool its economy are setting the country up for what

might be a “hard landing”, exacerbated by troubles in Europe and lower global demand; output grew by 14% in 2011, but is forecasted to grow at

just over 10% in 2012. GDP growth for 2012 is at 8.2% (IMF), down from

around 9% this year, though some analysts worry that actual growth could be significantly lower.

Chart Pack – Global Markets Figure: 3 – Capital Flows to Emerging Economies Figure: 4 - Feds Fund Target Rate

Figure: 5 - US Dollar Figure: 6 -Housing Market Index

According to Citigroup, there is

now a 50% chance that Greece will be forced to leave

the Euro within the next 18-

months



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Figure: 7 - US Unemployment rate (Seasonally Adj) Figure: 8 - Crude Brent Oil Prices

Figure: 9 - TED Spread Figure: 10 - CBOE VIX

Figure: 11 - CRB Commodity Index



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GCC Markets Review – January 2012 GCC markets extended gains in January, up 1.6% following a 2.55% gain in

December; positive performance was again boosted by Saudi Arabia, where the Tadawul saw an increase of 3.25%. The UAE also saw a positive month

with the DFM surging 6% while Abu Dhabi was up 2.15%. Qatar and Oman

posted the largest declines, losing about 2.4% each for the month.

Table: 1 - Market Indicators

Indicators M. Cap

(USD Bn) Last Close Monthly

Return % 2011% 2010 % P/E TTM

Saudi (TASI) 346 6,626 3.25 -3.07 8 12

Kuwait SE WT.INDEX 107 405 -0.13 -16.89 26 14

Qatar(Doha SM) 95 8,568 -2.40 1.12 25 9

Abu Dhabi (ADI) 72 2,454 2.15 -11.68 -1 7

Dubai (DFMGI) 49 1,436 6.08 -17.00 -10 10

Bahrain (BAX) 17 1,140 -0.34 -20.15 -2 8

Oman(Muscat SM) 14 5,561 -2.35 -15.69 6 12

S&P GCC Composite Index 235 93 1.63 -8.47 13 12

Source: Excerpt from Markaz „Daily Morning Brief‟ Feb 1st , 2012

The IMF is seeking up to $600bn from GCC states as part of a $1trillion

funding need as the European crisis worsens. The IMF hopes to secure $500bn from Saudi Arabia, who has stated that it is willing to contribute,

provided it is afforded increased say in the running of the so-called European bail-out fund.

The IMF has called on GCC states to enact more coordinated fiscal policies in order to better integrate the economies, citing high inflation differentials

between countries as a key issue which requires addressing. The institution has called for “counter-cyclical, macro-prudential policies during boom times

to contain excessive growth in credit.1”

Saudi Arabia

The 2012 budget is set at $184bn with emphasis on social welfare,

education and health care, although the government indicated that

expenditures may slow going forward. 2012 economic growth is expected at 6.8%, similar to 2011.

The General Organization for Social Insurance (GOSI) aims to boost its

investments in locally-listed firms, currently valued at over $23bn.

Saudi Arabia will begin allowing foreign firms to list on the Tadawul as the

country makes an effort to open up the market and boost liquidity though some foreign investors have expressed concern over possible “strings”

attached in the form of excessive regulation on foreign funds such as mandatory lock-up periods2.

The Kingdom‟s General Authority of Civil Aviation saw its first Sukuk, worth $4bn, oversubscribed by three times. The success of the issuance is likely to

bring about more Sukuks in the future, mainly to fund the over $7bn expansion of the International airport in Jeddah.

1 Inflation Differentials in the GCC: Does the Oil Cycle Matter?, IMF 2 Mark Mobius, Templeton Emerging Markets Group, Zawya Dow Jones Interview

GCC markets extended gains in January, up 1.6%

The IMF is seeking up to

$600bn from GCC states as part of a $1trillion funding

need as the European crisis worsens



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Sabic is expected to post lower growth in 2012 based on a Euro-area

recession and a marked slowing in Asia. The petrochemical giant‟s fourth

quarter net profits were down 10% to $1.4bn, but full year net income saw an increase of 36%. The stock gained 1.85% in January.

United Arab Emirates

The government has pledged to settle $544.5mn of debt owed by nationals under the condition that 25% of said citizen‟s salary is deducted until the

debt is paid back. Over 6,800 nationals are expected to benefit from the decision.

According to a new report by the Oxford Business Group, UAE Islamic financial services firms controlled a third of the global Islamic banking

industry in 2011, highlighting significant demand among investors for Islamic investment options, particularly Sukuks which have seen successful

issuances in the region.

In further signs that the Dubai property market has bottomed out, Tamweel

announced a four-fold increase in net profit for the fourth quarter to $8mn. Tamweel stock was down 11.6% in January. Moreover, Nakheel plans

to start work on Palm Jumeirah Island, its first project since its 2009 bailout.

DP World moved 54.7mn TEUs of throughput in 2011, a 10% rise on 2010. The firm has forecasted slower growth in 2012, but is expected to focus on

higher growth emerging markets in Asia and Latin America.

Kuwait

The beginning of February saw Parliamentary elections, with the market

rallying slightly in the days leading up to the vote. This was followed by the resignation of the government with a new one to be formed before the end

of February.

Average inflation ended the year at a three-year high of 4.8%, up from 4%

in 2010; however, analysts expect price pressures to subside in 2012.

The government is expected to soon launch the long-awaited low-cost housing project company with a capital of KD100mn ($359mn); Kuwaiti

nationals will hold 50% of shares while the remaining will be offered to a

strategic investor.

Lending growth was at its lowest level in 17 years, according to Central Bank data; credit to residents grew at a flat rate of 0.8%, the lowest rate

since 1995. This is in stark contrast to Saudi Arabia and Qatar where lending has grown at +10% in 2011.

NBK reported flat full year results of just over $1bn while fourth quarter results slightly missed consensus estimates. The bank cited a difficult

operating environment as the driver of the performance. NBK shed 5.1% for the month.

The UAE government has pledged to settle $544.5mn

of debt owed by nationals

Lending growth in Kuwait

was at its lowest level in 17 years, according to Central

Bank data; credit to residents grew at a flat rate

of 0.8%, the lowest rate

since 1995



7

Qatar

Qatar is planning to spend upwards of $25bn through 2020 on expanding

its petrochemical sector in an effort to double its annual production capacity from 9.2mn tons to 23mn tons.

Qatar has reportedly made a takeover approach to the majority owner of

Oger Telecom. Through the acquisition, Qatar would take possession of

55% of Turk Telecom and its mobile unit Avea in addition to South Africa‟s Cell C operator. The Turk Telecom stake alone is worth at least $8.6bn,

according to Reuters. Saudi Telecom owns 35% in Oger Telecom and has right of first refusal which could complicate matters for Qatar.

The country is making Turkey a high focus market for it; Qatar National Bank (QNB) is in on-going talks with Denizbank, which is the Turkish unit of

troubled Dexia. The deal is expected to be completed by the end of February. QNB surged 14.2% in January. QNB also announced a full

year cash dividend of 40% of nominal share value, amounting to QAR4 per share (down slightly from a DPS of 4.55 in 2010, in addition to bonus

shares of 10% of share capital.

Qatar Electricity and Water Company (QEWC) has acquired a 23% stake in

Amman East Power Plant from Saudi‟s Islamic Development Bank. The Jordan plat has a capacity of 300MW; the value of the deal has not been

disclosed. QEWC is also aiming to acquire a stake in the Hassyan 1 Power

Project which is a Dubai PPP in addition to investing in Tunisia where it has signed an agreement with the Tunisian Company for Electricity and Gas for

investing in future power plants. QEWC was down 1.13% for the month.

Liquidity, Risk & Valuation

Liquidity expanded in the first month of the year; GCC value and volume traded increased 23% and 49%, respectively, with trading valued at $46bn.

Trading was led by Saudi Arabia and Kuwait where value traded was up 31% each, while volume in Kuwait nearly doubled.

Risk in the GCC (as measured by the Markaz Volatility Index – MVX) was up 67% in January led by MVX Qatar which was up 88%. Oman and Bahrain

were the only markets to see declines in risk, down 33% and 40%, respectively.

Valuations have remained in a steady range as markets trade sideways with most countries in the 10x-15x range.

Chart Pack – GCC Figure: 12 – Saudi Arabia – PE Band Figure: 13 – Dubai – PE Band

Source: Thomson DataStream Source: MSCI, Thomson DataStream

GCC value and volume

traded increased 23% and

49%, respectively, with trading valued at $46bn



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Figure: 14 – Abu Dhabi – PE Band Figure: 15 - Qatar – PE Band

Source: MSCI, Thomson DataStream Source: MSCI, Thomson DataStream Figure: 16 - Oman – PE Band Figure: 17 - Bahrain – PE Band

Source: MSCI, Thomson DataStream Source: MSCI, Thomson DataStream

Figure: 18 – Average Daily Value Traded (USD mn)

Figure: 20 - Risk & Return – GCC Vs Developed & EM



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Figure: 21 – Comparative MVX Levels – January 2012

Source: MVX is a proprietary volatility index developed by Markaz Research Note: Base data for MVX GCC has been changed from MSCI GCC to S&P GCC Index.

Figure: 22 – US Dollar Returns on GCC Markets

Figure: 23 - Saudi Arabia Repo Rate Figure: 24 - Kuwait Rates



10

Source: Reuters Eikon Source: Reuters Eikon

Figure 25: Dubai CDS 5 yr

Data Tables – GCC

Data Table: 1 - Value & Volume Traded Indicators

Volume Parameters Value Parameters

% of Volume Traded

% of Value

Traded

Volume Traded (Mn)

LTM Avg

Volume Traded (Mn)

Top 5 Volume

Traded Concentration in Market Cap

Value Traded (USD Mn)

LTM Avg Value

Traded (USD Mn)

Top 5 Value

Traded Concentration in Market Cap

MoM Deviation

(%)

MoM Deviation

(%)

45% 90% Saudi Arabia 7,489 4,352 44% 3% 41,436 25,876 31% 25%

38% 5% Kuwait 6,299 3,221 90% 1% 2,176 1,745 31% 16%

15% 2% UAE 2,538 3,392 47% 6% 937 1,281 5% 22%

1% 3% Qatar 141 180 -66% 12% 1,390 1,761 -56% 46%

1% 0% Oman 240 182 -5% 22% 177 190 -25% 41%

0% 0% Bahrain 18 40 -48% 32% 10 20 -67% 34%

Total GCC 16,725 11,366 49% 46,126 30,872 23%

Source: Markaz Research

Data Table: 2 - Value traded (USD Bn)

2004 2005 2006 2007 2008 2009 2010 2011 2012

Saudi (TASI) 473 1103 1403 682 522 338 202 291

41



11

Kuwait (KSE) 51 97 60 131 134 75 44 22

2.18

Abu Dhabi (ADX) 4 29 19 48 83 19 9 6.7

0.39

Dubai (DFM) 14 110 95 103 63 48 19 8.7

0.59

Qatar (DSM) 6 28 21 30 47 26 19 22.7

1.39

Oman (MSM) 2 3 2 5 9 6 3 2.5

0.18

Bahrain (BAX) 0.4 0.6 1.4 0.9 2.2 0.48 0.29 0.3

0.01

Total 550 1371 1601 1000 860 512 296 354 46

Source: Zawya

Data Table: 3 - Blue Chips Performance

Companies

M.Cap (USD Bn)

Last Close

Monthly Change

2011 Change P/E TTM

3Q 2011 Earnings

YTD PAT (YoY Growth)

Saudi Arabia (SAR)

SABIC 76 94.5 -1.8 -2 -8 10 5,237* -9

Al-Rajhi Bank 29 72.3 4.0 4 -16 15 1,899* 14

Saudi Telecom 18 34.3 1.5 1 -21 9 2,278* -0

Saudi Electricity Co. 15 13.8 -1.1 -1 -1 26 -514* NM

Samba Fin. Group 11 45.2 -3.0 -3 -24 10 944* 5

United Arab Emirates (AED)

ETISALAT 20 9.5 4.1 4 -15 10 1,723 -1

NBAD 8 10.7 -2.3 -2 12 9 1,031 12

First Gulf Bank 7 17.2 11.0 11 -11 7 920 8

Emirates NBD 5 3.0 2.4 2 7 6 175 -59

Emaar Properties 5 2.7 6.6 7 -28 13 406 -34

Kuwait (KWD)

ZAIN 13 0.8 -6.7 -7 -41 12 70 -13

NBK 17 1.2 5.4 5 -14 16 77* -0

KFH 8 0.9 -4.4 -4 -16 29 25 -5

Gulf Bank 4 0.5 -3.9 -4 -11 33 9 9

Comm. Bk. Kuwait 3 0.8 -5.1 -5 -14 34 7 -65

Qatar (QAR)

Industries Qatar 20 130.6 -1.8 -2 -4 9 2,074 46

QNB 26 133.1 -12.4 -12 14 11 2,092* 35

Ezdan Real Est. Co. 14 19.2 -13.7 -14 -27 NM 202 17

Q-TEL 7 146.0 3.7 4 -5 10 567 -13

Comr‟cial Bk of Qatar 6 82.8 -1.4 -1 -9 11 379* 23

*4Q11 Source: Excerpt from Markaz Daily Morning Brief


Disclaimer

This report has been prepared and issued by Kuwait Financial Centre S.A.K (Markaz), which is regulated by

the Central Bank of Kuwait. The report is owned by Markaz and is privileged and proprietary and is subject

to copyrights. Sale of any copies of this report is strictly prohibited. This report cannot be quoted without the prior written consent of Markaz. Any user after obtaining Markaz permission to use this report must clearly

mention the source as “Markaz “.This Report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial

instruments or to participate in any particular trading strategy in any jurisdiction. The information and

statistical data herein have been obtained from sources we believe to be reliable but in no way are warranted by us as to its accuracy or completeness. Markaz has no obligation to update, modify or amend

this report.

This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors are urged to seek financial advice

regarding the appropriateness of investing in any securities or investment strategies discussed or

recommended in this report and to understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each

security‟s price or value may rise or fall. Investors should be able and willing to accept a total or partial loss of their investment. Accordingly, investors may receive back less than originally invested. Past performance

is historical and is not necessarily indicative of future performance.

Kuwait Financial Centre S.A.K (Markaz) does and seeks to do business, including investment banking deals,

with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. For further information, please contact „Markaz‟ at P.O. Box 23444, Safat 13095, Kuwait. Tel: 00965 1804800 Fax: 00965 22450647. Email: [email protected]

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market review 13022012

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