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Kuwait Financial Centre “Markaz” RESEARCH

October 2012

World markets remain in green GCC markets goes back to red

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 rmandagolathur@markaz.com

Animesh Tulsyan Analyst +965 224 8000 Ext : 4607 aTulsyan@markaz.com

Kuwait Financial Centre S.A.K. “Markaz” P.O. Box 23444, Safat 13095, Kuwait Tel: +965 2224 8000 Fax: +965 2242 5828 markaz.com

S&P 500 2.42

September 2012 Returns (%) MSCI World MSCI EM 2.52 5.84

S&P GCC -1.30

GCC Composite was down in September, losing 1.30% after an increase of 2.70% in August. However, except Saudi Arabia all markets were positive. Saudi lost 4.13% during the month. Kuwait was the largest gainer (4.45%) followed by Dubai (2.00%). Dubai has been the best performing market YTD, with a gain of 16.65%. Abu Dhabi gained 1.71% and Oman gained 0.99% during the month. Liquidity surged in September as witnessed by an increase of 38% in volume traded and 28% increase in value traded to USD 39.17 Bn. Saudi Arabia, which accounted for 31% of GCC’s total volume traded, witnessed a 25% MoM increase in value traded. According to Central Department of Statistics and Information Saudi Arabia's GDP, growth slowed to 5.5% in the second quarter, compared with 5.9% in the previous quarter and 7.8% a year earlier. According to Abu Dhabi Department of Economic Development Abu Dhabi is expected to post GDP growth of 3.9% this year. National bank of Abu Dhabi is of the view that annual inflation in the UAE is expected to climb to 1.4% by year end from the current 0.95%, driven mainly by higher global food prices. Most of the World indices ended on a positive note during the month. The MSCI world index was up 2.52% for the month. India BSE (7.65%), MSCI EM (5.84%) and Asia PAC EX JP (5.58%) were the top gainers during the month. In the FOMC meeting on September-12-13, it was decided that the Fed will purchase additional agency mortgage-backed securities at a pace of USD 40Bn per month. No end date was stated. The interesting issue here is that the Fed is not buying Treasuries. There may have been concern that further purchases of Treasuries would have been disruptive of credit markets. The Dollar Index lost 2.1% in the third quarter. Spain’s banks have a capital deficit of 59.3Bn Euros (USD 76.3Bn). Spain plans to borrow 207.2 billion euros (USD 266.5Bn) next year. In France, President Francois Hollande’s first annual budget 2013 blueprint relies on 20Bn euros (USD 26Bn) in tax increases. Hollande aims to reduce spending by 10Bn euros, bringing the deficit to 3% of output from 4.5% in 2012. In China the manufacturing contracted for an 11th straight month.


MARKAZ RESEARCH October 2012 Global Markets Review – September 2012 Major indices ended on a positive note during the month. India BSE (7.65%), MSCI EM (5.84%) and Asia PAC EX JP (5.58%) were the top gainers.

Major indices ended on a positive note during the month. India BSE (7.65%), MSCI EM (5.84%) and Asia PAC EX JP (5.58%) were the top gainers. Frontier Markets gained 4.04% for the month. CBOE VIX decreased 9.95% during the month signaling reduced volatility. The CRB commodity index increased by 1.34% at the end of the month. Figure 1: Monthly Returns – September 2012 (%)

On a YTD basis, India BSE rules the bunch with a gain of 21.4%.

On a YTD basis, India BSE rules the bunch with a gain of 21.4% followed by S&P 500 which is up 14.6% for the year. Shanghai SEA suffered the most with a loss of 5.2% in 2012. Figure 2: Price Returns – YTD (%)

Kuwait Financial Centre “Markaz” 2


MARKAZ RESEARCH October 2012 World In the FOMC meeting on September-12-13, it was decided that the Fed will purchase additional agency mortgage-backed securities at a pace of USD 40Bn per month.

Most of the World indices ended on a positive note during the month. In the FOMC meeting on September-12-13, it was decided that the Fed will purchase additional agency mortgage-backed securities at a pace of USD 40Bn per month. No end date was stated. The Dollar Index fell by the most since the first quarter of 2011.The Dollar Index lost 2.1% in the third quarter. Business activity in the U.S. unexpectedly contracted in September for the first time in three years as the business barometer of Institute for Supply Management-Chicago Inc. fell to 49.7 this month from 53 in August. Spain’s banks have a capital deficit of 59.3Bn Euros (USD 76.3Bn), according to a test designed to lift doubts about the financial industry’s ability to absorb losses. Spain plans to borrow 207.2 billion euros (USD 266.5Bn) next year. In France, President Francois Hollande’s first annual budget 2013 blueprint relies on 20Bn euros (USD 26Bn) in tax increases. Hollande aims to reduce spending by 10Bn euros, bringing the deficit to 3% of output from 4.5% in 2012. The budget predicts growth of 0.8%. In China the manufacturing contracted for an 11th straight month .The purchasing managers’ index from HSBC Holdings Plc (HSBA) and Market Economics had a final reading of 47.9 for September (47.6 in August).In India, according to a Central Bank Data, the country's external debt stood at USD 349.5Bn as of June 2012, up USD 3.9Bn or 1.1% over March 2012.

Chart Pack – Global Markets Figure: 3 – Capital Flows to Emerging Economies

Figure: 5 - US Dollar

Figure: 4 - Feds Fund Target Rate

Figure: 6 -Housing Market Index

Kuwait Financial Centre “Markaz” 3


MARKAZ RESEARCH October 2012 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

Kuwait Financial Centre “Markaz” 4


MARKAZ RESEARCH October 2012 GCC Markets Review – September 2012 GCC Composite was down in September, losing 1.30% after an increase of 2.70% in August.

GCC Composite was down in September, losing 1.30% after an increase of 2.70% in August. However, apart from Saudi Arabia all Markets were positive. Saudi lost 4.13% during the month. Kuwait was the largest gainer (4.45%) followed by Dubai (2.00%). Dubai has been the best performing market YTD, with a gain of 16.65%. Abu Dhabi gained 1.71% and Oman gained 0.99% during the month.

Market Indicators M. Cap (USD Bn) 366

Last Close 6,840

Monthly Return % -4.13

YTD % 6.58

2011% -3

P/E TTM 12

Kuwait SE WT.INDEX

105

418

4.45

3.04

-16

16

Qatar(Doha SM)

99

8,510

0.31

-3.06

1

9

Abu Dhabi (ADI)

79

2,605

1.71

8.46

-12

9

Dubai (DFMGI)

48

1,579

2.00

16.65

-17

11

Bahrain (BAX)

16

1,087

0.09

-4.93

-20

8

Oman(Muscat SM)

15

5,534

0.99

-2.82

-16

11

242

95

-1.30

3.34

-8

12

Indicators Saudi (TASI)

S&P GCC Composite Index

Source: Excerpt from Markaz ‘Daily Morning Brief’ -1st October 2012

Saudi Arabia Saudi Arabia's GDP, growth slowed to 5.5% in the second quarter, compared with 5.9% in the previous quarter and 7.8% a year earlier.

Saudi Arabia's GDP, growth slowed to 5.5% in the second quarter, compared with 5.9% in the previous quarter and 7.8% a year earlier: Central Department of Statistics and Information. Kingdom Holding Co. will spend 550 million Saudi riyals (USD 146.6Mn) over the next three years to expand its Kingdom Hospital in the Saudi capital. The company gained 7.83% in September and closed at SAR14.45. Saudi Hollandi Bank's board of directors have approved the issuing of sukuk worth 1.4Bn riyals as a private offering to support its capital base by using a Shariah-compliant structure. The company lost 4.71% in September and closed at SAR26.30. Allied Cooperative Insurance Group starts subscription for a rights issue to double its capital to SAR 200Mn (USD 53.34Mn) from SAR 100Mn.The company gained 14.59% in September and closed at SAR37.60. Sahara Petrochemicals Co. has signed a credit facility agreement with Riyad Bank worth 500Mn Saudi riyals (USD 133Mn) .The Company lost 7.71% in September and closed at SAR13.15. Mobile Telecommunications Co. Saudi Arabia has received a two-month extension on a 9.75Bn Saudi riyal (USD 2.6Bn) refinancing agreement with seven local banks. The company lost 18.65% in September and closed at SAR10.25.

Kuwait Financial Centre “Markaz” 5


MARKAZ RESEARCH October 2012 United Arab Emirates First Gulf Bank has mandated eight banks to arrange an USD 800Mn loan to fund its growth and expansion. The company gained 4.71% in September and closed at AED 10.00. RAK Properties has entered into a strategic agreement with Choithrams, a leading retail company to develop two flagship retail outlets in Mina Al Arab and Julfar Towers. The company closed flat for the month of September at AED 0.34. Julphar, the Gulf Pharmaceutical industries is opening a Dh 500mn plant in its headquarters in Ras Al Khaimah.

Julphar, the Gulf Pharmaceutical industries is opening a Dh 500mn plant in its headquarters in Ras Al Khaimah. The plant will manufacture and commercialize the diabetes products and will have the capacity to produce 1500kg of insulin, 45 million vials a year. The company gained 0.67% during the month and closed at AED 3.00 as on 26th September. Kuwait Kuwait Finance House said that talks to sell its stake in the local Al Salam [International] Hospital Co. have ended without reaching a final agreement. The company gained 11.6% in September. In a filing to the Kuwait Stock Exchange, Commercial Bank of Kuwait (AlTijari) announced that it had obtained relevant approvals to hold an extraordinary general meeting to liquidate its subsidiary Al-Tijari Investment (CBK Capital).The company closed flat for the month of September. Kuwait International Bank has said that approval for it to buy back or sell up to 10% of its issued shares has been extended for an additional six months by the country's central bank. The company gained 5.69% in September. Qatar

Volume increased 38% MoM in the GCC and Value Traded increased 28% to USD 39.17 Bn.

Qatar’s second-quarter real GDP grew by 5.0% over the same period in 2011 and by 2.5% over the first quarter of 2012. Nominal second-quarter GDP grew by 11.9% on the year, but dipped 1.1% on the quarter: Qatar Statistics authority. Qatar Islamic Bank plans to issue a dollar-denominated Islamic bond, under its recently approved USD 1.5Bn sukuk programme. The company lost 1.28% in September and closed at QAR 77.00. Qatar National bank has dropped its interest in buying the Egyptian operations of France’s BNP Paribas, favouring instead the assets of Societe Generale there due to SocGen’s bigger retail banking network. QNB gained 1.26% in September and closed at QAR 135.80.

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MARKAZ RESEARCH October 2012 Liquidity, Risk & Valuation Volume increased 38% MoM in the GCC and Value Traded increased 28% to USD 39.17 Bn. This was on the back of 17% MoM drop in volumes and 23% drop in Value Traded in August. Saudi Arabia, which accounted for 31% of GCC’s total volume traded, witnessed a 25% MoM increase in value traded. Risk in the GCC (as measured by the Markaz Volatility Index – MVX) increased by 50.18% in September. Risk in Saudi Arabia increased 20.63% for the month while Abu Dhabi shed 22%. Except for Saudi Arabia, Markets in GCC increased their gain over last month. Most countries traded near the 8x - 12x range. Chart Pack – GCC Figure: 12 – Saudi Arabia – PE Band

Source: Thomson Reuters Eikon

Figure: 14 – Abu Dhabi – PE Band

Source: Thomson Reuters Eikon

Figure: 16 - Oman – PE Band

Source: Thomson Reuters Eikon

Figure: 13 – Dubai – PE Band

Source: Thomson Reuters Eikon

Figure: 15 - Qatar – PE Band

Source: Thomson Reuters Eikon

Figure: 17 - Bahrain – PE Band

Source: Thomson Reuters Eikon

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MARKAZ RESEARCH October 2012 Figure: 18 – Average Daily Value Traded (USD mn)

Figure: 19 - Risk & Return (Sep 2005 – Sep 2012) – GCC Vs Developed & EM 20% 15% 10% 5% CAGR

USA

0%

-5% -10%

Bahrain

World

Kuwait GCC

-15% -20% 10%

15%

EM Oman EAFE

20%

UAE

25%Annualized 30% Risk

Qatar Saudi Arabia

35%

40%

45%

Figure: 20 – Comparative MVX Levels – September 2012

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

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MARKAZ RESEARCH October 2012 Figure: 21 – US Dollar Returns on GCC Markets

Figure: 22 - Saudi Arabia Repo Rate

Figure: 23 - Kuwait Rates

Figure 24: Dubai CDS 5 yr

Kuwait Financial Centre “Markaz” 9


MARKAZ RESEARCH October 2012 Data Tables – GCC Data Table: 1 - Value & Volume Traded Indicators Volume Parameters % of Volume Traded 31% 40% 25% 1% 3% 0%

% of Value Traded 87% 6% 3% 3% 1% 0%

Saudi Arabia Kuwait UAE Qatar Oman Bahrain Total GCC

Volume Traded (Mn) 4,646 6,113 3,817 126 473 41 15,216

LTM Avg Volume Traded (Mn) 7,362 5,984 4,347 184 300 55 18,230

Value Parameters

MoM Deviation (%) 13% 85% 20% 29% 43% 121% 38%

Value Traded (USD Mn) 34,137 2,210 1,286 1,235 293 14 39,176

LTM Avg Value Traded (USD Mn) 43,014 2,004 1,493 1,562 204 29 48,307

MoM Deviation (%) 25% 126% 18% 21% 71% 89% 28%

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

430.2

Kuwait (KSE)

51

97

60

131

134

75

44

22

19.6

Abu Dhabi (ADX)

4

29

19

48

83

19

9

7

4.5

Dubai (DFM)

14

110

95

103

63

48

19

9

11.0

Qatar (DSM)

6

28

21

30

47

26

19

23

12.9

Oman (MSM)

2

3

2

5

9

6

3

3

2.0

0.4 550

0.6 1371

1.4 1601

0.9 1000

2.2 860

0.48 512

0.29 296

0 354

480

Bahrain (BAX) Total Source: Zawya

0.2

Data Table: 3 - Blue Chips Performance M.Cap (USD Bn)

Last Close

Monthly Change

YTD

2011 Change

P/E TTM

2Q 2012 Earnings

PAT (YoY Growth)

73 29 21 15 11

91.0 71.3 39.7 13.1 44.3

-1.6 -3.7 -2.2 -0.8 -7.7

-5 3 17 -6 -5

-8 -16 -21 -1 -24

11 14 9 22 9

5,303 2,093 2,408 1,360 1,158

-35 14 7 2 5

21 10 8 5 6

9.6 9.1 10.0 3.0 3.5

1.5 6.8 4.7 -1.7 5.1

6 14 29 1 35

-15 12 -11 7 -28

13 9 8 10 9

1,866 1,046 1,017 648 614

17 2 14 -13 146

11 15 8 4 3

0.7 1.0 0.8 0.4 0.7

7.2 0.0 11.6 10.0 0.0

-18 -3 -8 -9 -10

-41 -14 -16 -11 -14

10 15 29 45 -

71 40 22 5 0.1

1 -40 -3 -36 -5

Qatar (QAR) 21 140.7 1.6 Industries Qatar 26 135.8 1.3 QNB 14 19.7 -3.4 Ezdan Real Est. Co. 9 105.5 -2.1 Q-TEL 5 74.5 2.5 Comr’cial Bk of Qatar Source: Excerpt from Markaz Daily Morning Brief-1st October -2012.

6 -2 -11 12 -11

-4 14 -27 -5 -9

10 11 82 11 9

2,129 2,112 198 641 546

3 17 91 -11 7

Companies Saudi Arabia (SAR) SABIC Al-Rajhi Bank Saudi Telecom Saudi Electricity Co. Samba Fin. Group United Arab Emirates (AED) ETISALAT NBAD First Gulf Bank Emirates NBD Emaar Properties Kuwait (KWD)

ZAIN NBK KFH Gulf Bank Comm. Bk. Kuwait

Kuwait Financial Centre “Markaz” 10


MARKAZ RESEARCH October 2012

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: research@markaz.com

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