mmr08112012

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

World indices give mixed indications GCC markets remain in red

October 2012 Returns (%)

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

-1.98 -0.76 -0.73 -0.57

Major Indices of the world did not move in a single direction during the

month. The MSCI world index was down 0.76% for the month. MSCI

Europe (1.35%), MSCI EAFE (0.76%) and FTSE 100 (0.71%) were the top

gainers during the month. The world has its eyes set on the presidential

elections in U.S.A on November 6th. S&P 500 took a beating in October

amidst disappointing corporate results and forecasts. Companies like 3M Co

and DuPont Co have already reported disappointing quarterly results.

Official Eurostat figures revealed that unemployment in the Eurozone hit a

record high of 11.6% in September. Greece, Spain, Italy, Portugal, and

Cyprus are the European countries already in recession .

In the FOMC meeting on October-23-24, the committee anticipated that

that inflation in U.S.A over the medium term likely would run at or below its

2% objective. The Committee will continue purchasing additional agency

mortgage-backed securities at a pace of USD 40Bn per month. As per an

estimation of Center for responsive politics, the cost of the 2012 U.S.

election will exceed USD 6Bn, USD 700Mn more than four years ago.

In Germany, the jobless rate increased for the first time in three years.

Spain‟s GDP contracted 1.6% in the third quarter from a year earlier. In

Italy, the borrowing costs dropped at an auction of 8Bn Euros (USD 10.3Bn)

of six-month Treasury bills.

GCC markets did not have any major positive triggers and continues to

mirror the confusing global market trends. GCC Composite was down in

October, losing 0.57% primarily due to Saudi Arabia dropping by 0.71%.

The October loss comes on the heels of September loss of 1.3%. The year

to date performance of the GCC composite is a muted 2.75%, nothing great

to write home about. While Saudi Arabia was in the negative, other markets

(Abu Dhabi, Dubai, Oman, Qatar) were in positive territory giving some

hopes. The UAE markets continue to hold on to their significant gains

during the year and is on the top of the charts with a stellar YTD

performance (Dubai +19.67 and Abu Dhabi +11.37%). Kuwait gave up

significantly during the month (-2.66%) to bring down its year to date

performance close to zero. According to IMF, the six-nation Gulf

Cooperation Council's (GCC) combined fiscal surplus may turn into a deficit

around 2017 as oil prices slip below USD 100 and government spending

rises. The UAE prime minister has approved the 2013 federal budget with

more focus on social spending and without the deficits of the last two years.

Liquidity dropped during the month as witnessed by a 29% contraction in

value traded.

November 2012

Research Highlights:

Review of global and regional stock markets for the previous

month

Markaz Research is

available on Bloomberg - Type “MRKZ” <Go>

Thomson Research, Reuters Knowledge

Nooz

Zawya Investor ISI Emerging markets

Capital IQ FactSet Research Connect

TheMarkets.com

M.R. Raghu CFA, FRM Head of Research

+965 2224 8280 [email protected]

Animesh Tulsyan Analyst

+965 224 8000 Ext : 4607

[email protected]

Kuwait Financial Centre S.A.K. “Markaz”

P.O. Box 23444, Safat 13095,

Kuwait

Tel: +965 2224 8000 Fax: +965 2242 5828

markaz.com

mailto:[email protected]


MARKAZ RESEARCH November 2012

Kuwait Financial Centre “Markaz”

2

Global Markets Review – October 2012

Major indices moved in opposite direction during the month with almost half

of them ending positive and remaining half ending negative. MSCI Europe

(1.35%), MSCI EAFE (0.76%) and FTSE 100 (0.71%) were the top gainers.

S&P 500(-1.98%), India BSE (-1.37%) and Shanghai SE A (-0.83%) were

the top losers. Frontier Markets lost 0.76% for the month.

CBOE VIX increased 18.24% during the month signaling increased volatility.

The CRB commodity index decreased by 4.25% at the end of the month.

Figure 1: Monthly Returns – October 2012 (%)

On a YTD basis, India BSE rules the bunch with a gain of 19.7% followed by

ASIA PAC EX JP which is up 12.8% for the year. Shanghai SEA suffered the

most with a loss of 6.0% in 2012.

Figure 2: Price Returns – YTD (%)

Major indices moved in opposite direction during the

month with almost half of them ending positive and

remaining half ending negative.

On a YTD basis, India BSE rules the bunch with a gain

of 19.7%.



3

World

World indices moved in opposite directions during the month. In the FOMC

meeting on October-23-24, the committee anticipated that that inflation in

U.S.A over the medium term likely would run at or below its 2% objective. The Committee will continue purchasing additional agency mortgage-backed

securities at a pace of USD 40Bn per month. The index of pending home

resales climbed 0.3% in September after a 2.6% drop in August, as per the

figures from National Association of Realtors. As per an estimation of Center

for responsive politics, the cost of the 2012 U.S. election will exceed USD

6Bn, USD 700Mn more than four years ago.

In Germany, the jobless rate increased for the first time in three years. The

number of people out of work climbed a seasonally adjusted 20,000 from

September to 2.94 million. Spain‟s GDP contracted 1.6% in the third quarter

from a year earlier. In Italy, the borrowing costs dropped at an auction of

8Bn Euros (USD 10.3Bn) of six-month Treasury bills. On October 29th the

Treasury in Rome sold the 181-day bills at 1.347%, the lowest since March

28 and down from 1.503% at the last auction on Sept. 26.

In China the manufacturing expanded for the first time in three months.

The Purchasing Managers‟ Index climbed to 50.2 in October from 49.8 in

September. In India, The Central Bank lowered the GDP forecast for FY13

to 5.8% from 6.5% earlier.

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

In the FOMC meeting on

October-23-24, the

committee anticipated that that inflation in U.S.A over

the medium term likely would run at or below its

2% objective.

http://topics.bloomberg.com/rome/



4

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

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

Figure: 11 - CRB Commodity Index



5

GCC Markets Review – October 2012 GCC Composite was down in October, losing 0.57% after a decrease of

1.30% in September. However, Qatar, Abu Dhabi, Dubai and Oman markets

were in positive. Saudi lost 0.71% during the month. Dubai (2.59%) was

the largest gainer followed by Abu Dhabi (2.57%).Bahrain (-2.71%) was

the largest loser. Dubai has been the best performing market YTD, with a

gain of 19.67%. Kuwait lost 2.66% and Oman gained 2.27% during the

month.

Market Indicators

Indicators M. Cap

(USD Bn) Last Close Monthly

Return % YTD % 2011% P/E TTM

Saudi (TASI) 366 6,791 -0.71 5.82 -3 12

Kuwait SE WT.INDEX 102 407 -2.66 0.31 -16 16

Qatar(Doha SM) 99 8,546 0.43 -2.65 1 10

Abu Dhabi (ADI) 80 2,672 2.57 11.25 -12 9

Dubai (DFMGI) 48 1,620 2.59 19.67 -17 11

Bahrain (BAX) 16 1,058 -2.71 -7.50 -20 8

Oman(Muscat SM) 15 5,660 2.27 -0.62 -16 11

S&P GCC Composite Index 242 94 -0.57 2.75 -8 12

Source: Excerpt from Markaz „Daily Morning Brief‟ -1st November 2012

Saudi Arabia

KSA‟s General Authority of Civil Aviation is building three airports in Jazan, Abha and Al Qasim which will be able to accommodate 7.3Mn more

passengers each year. The new airports are part of an investment of USD

10.66Bn in the aviation infrastructure authority.

Saudi Electricity Co has awarded contracts to South Korea‟s Hyundai and

Japanese Mitsubishi to build and supply equipment for a large power plant

in Jeddah. Saudi electricity gained 4.6% in October and closed at

SAR 13.65

Saudi-based Savola Group has raised its stake in fellow Saudi food firm

Almarai Co to 36.5% by purchasing shares worth 2Bn riyals (USD 533Mn).

Savola Group gained 5.67% in October and closed at SAR 41.00.

The National Shipping Company of Saudi Arabia (Bahri) and state oil giant

Saudi Aramco have reached an agreement on the terms and conditions of

Bahri‟s merger with Aramco‟s Vela International Marine unit. National

Shipping gained 3.73% in October and closed at SAR 18.05

Moody‟s Investors Services upgraded its baseline credit assessment of

Saudi Basic Industries Corporation (SABIC) due to its “sustained

improvement in operating performance and financial metrics”. The rating

agency raised the BCA of SABIC to a1 from a2 and also affirmed the A1

senior unsecured ratings, adding that its outlook was stable. SABIC lost

3.0% in October and closed at SAR 88.50.

GCC Composite was down in

October, losing 0.57% after a decrease of 1.30% in

September.

KSA‟s General Authority of Civil Aviation is building three

airports in Jazam, Abha and Al

Qasim which will be able to accommodate 7.3Mn more

passengers each year.



6

United Arab Emirates

Aldar and Sorouh Real Estate‟s state-backed merger agreement is likely to

be finalized in November. The resulting company is expected to have USD

15Bn in assets. Al Dar properties gained 8% in October and closed

at AED 1.35.

NBAD and Boeing sign an agreement to develop aircraft financing and

leasing opportunities. The MoU which has immediate effect seeks to

increase investment opportunities for financial institutions in the Middle

East. NBAD gained 8.79% in October and closed at AED 9.90.

Abu Dhabi Commercial Bank settles a USD 107.13Mn legal claim against indebted Zabeel investments owned by the crown prince of Dubai. ADCB

had sued Zabeel which had failed to meet repayment obligations. The

settlement was for the whole amount filed at the DIFC. ADCB gained 1.22% in October and closed at AED 3.30.

Kuwait

Kuwait's Gulf Bank has said that the country's central bank has approved its

request for extending the period for buying back or selling up to 10% of its

issued shares for an additional six months. Gulf Bank lost 6.81% in October.

National Mobile Telecommunications Co is looking to secure up to 25% of

its revenues from data after the Kuwaiti government allowed local

companies earlier this month to introduce the fourth-generation Long Term

Evolution, high-speed data technology to their customers. NMTC lost

13.17% in October.

Kuwaiti mobile operator Zain aims to list its Iraqi unit by the end of the first

quarter next year pending receipt of regulatory approvals. Zain closed flat

in October.

Qatar

Qatar‟s current account surplus shrank to 35.1Bn riyals (USD 9.6 Bn) in the

second quarter of 2012, or 20.2% of GDP: Qatar Statistics Authority.

Doha Bank is considering selling shares in London as part of a plan to

boost capital by up to USD 1.6Bn in 2013. The bank lost 1.08% in

October and closed at QAR 54.70.

The board of Qatar Insurance has approved the sale of shares worth 488.6

million riyals (USD 134.2Mn) to state fund Qatar Holding. Qatar

Insurance lost 1.42% in October and closed at QAR 69.00.

Qatar Telecom (Qtel) announces the completion of its Mandatory Tender

Offer for National Mobile Telecommunications Company K.S.C. (“Wataniya

Telecom Kuwait”). Qtel gained 0.09% in October and closed at QAR

105.60.

Aldar and Sorouh Real Estate‟s state-backed merger

agreement is likely to be finalized in November.

Volume decreased 5% MoM in the GCC and Value Traded

reduced 29% to USD 27.62 Bn.



7

Liquidity, Risk & Valuation

Volume decreased 5% MoM in the GCC and Value Traded reduced 29% to

USD 27.62 Bn. This was on the back of 38% MoM increase in volumes and

28% increase in Value Traded in September. Saudi Arabia, which accounted

for 21% of GCC‟s total volume traded, witnessed a 32% MoM drop in value

traded.

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

flat in October. Risk in Kuwait increased 76.44% for the month while Bahrain

shed 29%.

Most countries traded near the 8x - 12x range.

Chart Pack – GCC

Figure: 12 – Saudi Arabia – PE Band Figure: 13 – Dubai – PE Band

Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon

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

Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon Figure: 16 - Oman – PE Band Figure: 17 - Bahrain – PE Band

Source: Thomson Reuters Eikon Source: Thomson Reuters Eikon



8

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

Figure: 19 - Risk & Return (Oct 2005 – Oct 2012) – GCC Vs Developed & EM

Figure: 20 – Comparative MVX Levels – October 2012

Source: MVX is a proprietary volatility index developed by Markaz Research

EAFE World USA

EM

GCC Saudi Arabia

Kuwait

UAE

Qatar

Bahrain

Oman

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

10% 15% 20% 25% 30% 35% 40% 45%

CAG

R

Annualized Risk



9

Figure: 21 – US Dollar Returns on GCC Markets

Figure: 22 - Saudi Arabia Repo Rate Figure: 23 - Kuwait Rates

Figure 24: Dubai CDS 5 yr



10

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)

Value Traded

(USD Mn)

LTM Avg Value

Traded (USD Mn)

MoM Deviation

(%)

MoM Deviation

(%)

21% 84% Saudi Arabia

3,071 7,225 -34% 23,222 42,310 -32%

47% 7% Kuwait 6,846 6,248 12% 1,854 2,007 -16%

29% 5% UAE 4,122 4,489 8% 1,342 1,538 4%

1% 4% Qatar 98 181 -22% 1,021 1,522 -17%

2% 1% Oman 259 309 -45% 171 207 -42%

0% 0% Bahrain 33 49 -19% 11 24 -22%

Total GCC 14,429 18,500 -5% 27,621 47,607 -29%

Source: Markaz Research

Data Table: 2 - Value traded (USD Bn)

2004 2005 2006 2007 2008 2009 2010 2011 2012

Saudi (TASI) 473 1103 1403 682 522 338 202 291 453.4

Kuwait (KSE) 51 97 60 131 134 75 44 22 21.4

Abu Dhabi (ADX) 4 29 19 48 83 19 9 7 5.0

Dubai (DFM) 14 110 95 103 63 48 19 9 11.9

Qatar (DSM) 6 28 21 30 47 26 19 23 14.0

Oman (MSM) 2 3 2 5 9 6 3 3 2.2

Bahrain (BAX) 0.4 0.6 1.4 0.9 2.2 0.48 0.29 0 0.3

Total 550 1371 1601 1000 860 512 296 354 508 Source: Zawya

Data Table: 3 - Blue Chips Performance

Companies

M.Cap (USD Bn)

Last Close

Monthly Change

2011 Change P/E TTM

2Q 2012 Earnings

YTD PAT (YoY Growth)

Saudi Arabia (SAR)

SABIC 71 88.5 -2.7 -8 -8 11 5,303 -35

Al-Rajhi Bank 28 70.3 -1.4 1 -16 13 2,093 14

Saudi Telecom 22 41.7 5.0 23 -21 9 2,408 7

Saudi Electricity Co. 15 13.7 4.2 -2 -1 18 1,360 2

Samba Fin. Group 11 44.0 -0.7 -6 -24 9 1,158 5

United Arab Emirates (AED)

ETISALAT 21 9.8 1.2 7 -15 12 3,675 8

NBAD 10 9.9 8.8 24 12 10 1,046 2

First Gulf Bank 8 10.5 4.6 35 -11 8 1,017 14

Emirates NBD 4 2.9 -3.4 -2 7 8 648 -13

Emaar Properties 6 3.6 3.7 40 -28 10 614 146

Kuwait (KWD)

ZAIN 11 0.7 0.0 -18 -41 10 71 1

NBK 15 1.0 -3.0 -6 -14 14 40 -40

KFH 8 0.8 -2.6 -10 -16 28 22 -3

Gulf Bank 4 0.4 -6.8 -16 -11 42 5 -36

Comm. Bk. Kuwait 3 0.7 -2.8 -13 -14 - 0.1 -5

Qatar (QAR)

Industries Qatar 23 152.0 8.0 14 -4 10 2,129 3

QNB 26 133.9 -1.4 -3 14 11 2,112 17

Ezdan Real Est. Co. 14 18.9 -4.3 -15 -27 83 198 91

Q-TEL 9 105.6 0.1 12 -5 10 641 -11

Comr‟cial Bk of Qatar 5 71.9 -3.5 -14 -9 9 546 -43

Source: Excerpt from Markaz Daily Morning Brief-1st November -2012.


Economic ResearchInfrastructure

Research*Real Estate Research Sector Research Capital Markets Research

GCC Demographics (July – 12) Power Country Reports Banking & Financial ServicesIncluding GCC in the MSCI EM Index

(Oct- 12)

Got a CMA: What Next? (Feb- 12) KSA(2012) Kuwait(2012)GCC: Kuwait, KSA, Abu Dhabi,

Dubai, QatarGCC Banking Sector (2012)* Alpha Abound (Aug- 12)

Markaz Daily

Morning Brief

Daily Fixed Income

Update

How is the GCC preparing for a AA+

World? (Sept- 11)UAE(2012) Qatar(2012), Le va nt: Lebanon, Jordan, Syria Kuwait Investment Sector (Mar- 12)

GCC Defensive Bellwether Stocks

(Jan- 12)

Markaz Kuwait

WatchOil & Gas Bulletin

MENA Unrest (Apr- 11) GCC(2012) North Afric a : Egypt, Algeria Stress Testing Kuwait Banks (May- 11) KSE 15 Index (Sept- 11)

Kuwait Development Plan (Mar- 11) Ports Inte rna tiona l: USA Kuwait Investment Sector (Sept- 10) The Golden Portfolio (Sept- 10)MENA Market

IntelligenceKSE Market Review

Kuwait Capital Market Law

(Mar- 10)KSA(2012) UAE(2012)

The New Regulations on Kuwait

Investment Sector (Jun- 10)Persistence in Performance (Jun- 10)

Diworsification: The GCC Oil

Stranglehold (Jan- 09)Qatar(2012) Oman(2012) Thematic Reports

GCC Banks - Done with Provisions?

(Jan- 10)Missing the Rally (Jun- 09)

The “ Vic ious Square” Monetary

Policy options for Kuwait (Feb- 08)GCC(2012) GCC Real Estate Financing (Sep- 09) Shelter in a Storm (Mar- 09) This Too Shall Pass (Jan- 09) Market Review

Regional Petroleum

Projects Commentary

To Leap or To Lag: Choices before

GCC Regulators (Apr- 07)Aviation GCC Supply Adjustments (Apr- 09) Banking Sweet spots (Apr- 08) Fishing in Troubled Waters (Dec- 08)

GCC for Fundamentalists

(Dec- 06)UAE(2012) GCC(2012)

GCC Distressed Real Estate

Opportunities (Sep- 09)GCC Petrochemicals *

Down and Out: Saudi Stock Outlook

(Oct- 08)

GCC Leverage Risk (Nov- 06) Water Dubai Real Estate Meltdown (Feb- 09)Mr. GCC Market- Manic Depressive

(Sept- 08)

GCC(2012) GCC Healthcare * To Yield or Not To Yield (May- 08)

ICT Real Estate PerspectivesChina and India: Too Much Too Fast

(Oct- 07)

GCC(2012) UAE 3 year property visa (Jul- 11)

GCC Asset Management &

Investment Banking Report

2012*

A Potential USD 140b Industry:

Review of Asset Management

Industry in Kuwait (Sep- 07)

Roads and Railways Infrastructure and Amenities (Sep- 11)A Gulf Emerging Portfolio: And Why

Not? (Jun- 07)

GCC(2012)Unfolding of Oversupply in Abu Dhabi

(Nov- 11)GCC Metals & Mining* Derivatives Market in GCC (Mar- 07)

Managing GCC Volatility (Feb- 07)

* Pa id Ca te gory: Exe c utive

Summa ry a nd Ta ble of

Conte nts a va ila ble for fre e

downloa d

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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

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