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Kuwait Financial Centre “Markaz” RESEARCH June 2009

Missing the rally Will you get another opportunity?

Research Highlight: Examining the current rally of global and regional markets to assess market attractiveness.

Markaz Research is available on Bloomberg Type “MRKZ” <Go> Thomson Financial Reuters Knowledge Zawya Investor Noozz

“Those who were over invested will be catatonic and just sit and pray. Those few who look brilliant, oozing cash, will not want to easily give up their brilliance. So almost everyone is watching and waiting with their inertia beginning to set like concrete. Typically, those with a lot of cash will miss a very large chunk of the market recovery.....” Jeremy Grantham, Chairman, GMO, March 2009 It’s not only the current crisis that is appalling in scale, even the subsequent rally that is happening seems to be appalling in terms of the speed and scale. India is up 72% from its trough in just 2.5 months! Emerging markets in general is up 66% from its trough while Qatar is up nearly 60% from its trough. And the list goes on. Almost all markets have experienced a very sharp rebound unseen in the past. But the ironic truth is not many fund managers and investors have really participated in this unprecedented rally. They will certainly under perform their benchmarks. However, the rally has now started pulling in retail investor interest. Is this a good time? This is the key question that we try and address in this research. While the stock markets are in a frenzy, it may be useful to place them in context. We have looked at four key parameters:

M.R. Raghu CFA, FRM Head of Research +965 2224 8280 rmandagolathur@markaz.com Amrith Mukkamala Senior Analyst +965 2224 8281 amukkamala@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

Risk: How far volatility has cooled off? Underwater Perspective: How far the markets have gone under the water and therefore how much more return is left before it reaches the surface again. Scale: Relative to history, what has been the size of returns in the current rally? Speed: Relative to history, what has been the speed of recovery? While we feel that emerging markets in general have overrun, India is especially noteworthy. With another 48% increase in its index (SENSEX), it will surpass its previous historic high. The same level required for Saudi Arabia is an astonishing 240%. Most of the GCC markets are fairly placed with UAE yet to catch up in the rally act and therefore offer potential going forward. Its time to differentiate the wheat from the chaff …


RESEARCH June 2009 The steep rebound in equity markets, especially in case of India and Emerging markets has resulted in recovering almost 75% of the losses recorded in the movement from their peaks to trough levels.

Sizing up the current rally The extent of gains in the equity markets in the past few months have taken investors, both institutional and retail, by surprise. In the majority of cases, high cash levels in the period between Jan – Mar 2009 have led to missing the strong rally between April – May. The steep rebound in equity markets, especially in the case of India and Emerging markets has resulted in recovering almost 75% of the losses recorded in the movement from their peaks to trough levels. The Indian markets witnessed a decline from their peak of 20687 in Jan 2008 to 8160 in Mar 2009. Post this the index has witnessed an appreciation of 72% within a matter of 2.5 months! (Figure: 1) However, there are the other markets which are still to make their mark in this rally. For example UAE has witnessed a 70% drop since its previous peak to trough has climbed by only 15%, thereby underperforming significantly. Similarly, Kuwait, which posted a peak at 15,655 in Jun 2008 witnessed a trough in Mar 2009 at 6392, a decline of 59%. Post this, the index has witnessed a reversal of only 21%. The questions that are begging answers by fund managers and retail investors alike currently are: 1. Is this a new secular bull market? Our short answer: No, the rally has been overbought in some markets, which might result in negative returns in the short to medium term future. 2. Are we to buy now, having missed the rally so far? Our short answer: Selectively yes. We are overweight on UAE, Neutral on the rest of the markets in our focus list ex-EM and India. Figure: 1 – Contrast between the current rally and the decline preceding this rally Decline % from Peak to Trough 80%

72%

66%

60%

59%

Current Run up %

55% 34%

40%

47% 21%

20%

15%

0%

We ascertain the market attractiveness using a combination of three main factors: 1. Risk, 2. Extent of damage (Underwater perspective), 3. Scale & Speed.

-20% -40% -60% -80%

-61%

-66%

-67%

-57% -72%

-80%

-100%

India

EM

Qatar

China

-59%

S&P 500

-70%

Saudi Kuwait Arabia

UAE

Source: MSCI, Thomson DataStream, Reuters 3000xtra

In our view, the attractiveness of the current rally and its sustainability on a near to medium term basis can be ascertained by looking back into the history. We ascertain the market attractiveness using a combination of four main factors: 1. Risk, 2. Extent of damage (Underwater perspective), 3. Scale 4. Speed. (Appendix: 1, Figure: 12 - Methodology)

Kuwait Financial Centre “Markaz”

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RESEARCH June 2009

A. Market Attractiveness The risk levels across all the markets have witnessed a decline since the peak volatility levels witnessed during the Lehman collapse.

1. Risk The risk levels across all the markets have witnessed a decline since the peak volatility levels witnessed during the Lehman collapse. Our yard stick to choose the volatility levels during the collapse of the Leman brothers is to gauge the perception of investors. Investors perception during the collapse of Lehman Brothers was ripe with speculation on which institution would follow suit and the magnitude of systemic defaults that might take place. The decline in volatility levels from this yard stick showcases that these risks have witnessed a decline. The Ted spread on a broader basis has also returned to levels seen before the Lehman collapse. The CBOE Vix index is down nearly 20% for the year. On a macro basis, we believe that declining risk levels in the markets are positive. (Figure: 2). We use our in-house proprietary risk model (Markaz Volatility Index (MVX)) to measure and assess the risk levels across various markets. (See Appendix-2 for a description on the methodology of calculating MVX) Figure: 2 – MVX Levels – During Lehman Collapse and current, % Change MVX Levels 15,000

% Deviation Current Risk Level

% Change 100

Max Risk Level During Lehman Collapse (Sep 08 - Dec 08)

Score: 8

Score: 6

50 10,000 0 5,000 -50 -55

The emerging markets, UAE and S&P 500 has witnessed the highest fall in volatility levels compared to the levels during Lehman’s collapse.

0

Saudi Arabia

-56

India

-60

Kuwait

-62

Qatar

-62

China

-63

S&P 500

-64

UAE

-67

-100

EM

Source: Markaz research The emerging markets, UAE and S&P 500 has witnessed the highest fall in volatility levels compared to the levels during Lehman’s collapse. MSCI EM index recorded its peak MVX level on 30 October 2008 at 10,242 and the current MVX level at 3,418 signifies a decline of 67%. Due to the inverse relationship of MVX and the underlying index, the index posted a trough at 454 on 28 October 2008 and is currently at 756, a gain of 66%. Saudi Arabia and India have posted least decline among the markets used for comparison. Saudi Arabia has posted a decline of 55% from its peak on 14 October 2008. However, for Saudi Arabia, the peak in MVX during Sep – Dec 08 period at 11,386 is not a life time high peak. Saudi Arabian MVX peaked out in May 2006 at 13,578. 2. Underwater perspective All the markets posted negative returns in 2008. (Appendix: 3). In this, some of the markets have posted a trough in late 2008 or in early 2009 (Appendix: 5). Post this trough some of the markets have witnessed strong rallies, which has resulted in wiping out almost 3/4th of the losses witnessed Kuwait Financial Centre “Markaz”

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RESEARCH June 2009 Among the markets used for comparison, India has witnessed the highest run up post the trough index (Sensex) level of 8,160 posted on 9 March 2009.

since the peak!. This is in spite of the fact that most of the economic forecasts have not witnessed such a level of upward revision. Among the markets used for comparison, India has witnessed the highest run up post the trough index (Sensex) level of 8,160 posted on 9 March 2009. Within a span of 2.5 months, the Indian benchmark index has recorded gains of 72% from its trough to the current level of 14,150. The Indian markets are closest to the surface with an underwater level of $67, thereby requiring another 48% to reach the surface. (Figure: 3) Figure: 3 – Underwater perspective – India

$120 $100 $80

$67

$60

$59

$40

$52

$44

$39

$20

4-Apr-09

4-Apr-06

4-Apr-03

4-Apr-00

4-Apr-97

4-Apr-94

4-Apr-91

4-Apr-88

4-Apr-85

4-Apr-82

4-Apr-79

$0

Source: MSCI, Thomson DataStream, Reuters 3000xtra Similarly, the emerging markets too has posted a strong rally from its trough at 454 on 27-Oct-08. The trough to current rally has been at 66%, with an underwater level of $56. (Appendix: 5) Figure: 4 – % change required to break surface The emerging markets too has posted a strong rally from its trough at 454 on 27-Oct-08.

300% 250% 200%

240% 190% 130%

150%

103%

100%

92%

77% 73%

50%

48%

0% Saudi UAE Arabia

China Kuwait Qatar

EM

S&P 500

India

Source: MSCI, Thomson DataStream, Reuters 3000xtra However, the GCC markets and the Chinese markets are yet to post such a strong rally as witnessed in EM and India. Saudi Arabia, the largest market in the GCC region has posted a 47% increase from its trough on 9-Mar-09 Kuwait Financial Centre “Markaz”

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RESEARCH June 2009 Saudi Arabia, the largest market in the GCC region has posted a 47% increase from its trough on 9-Mar-09 at 4,130.

at 4,130. The current index level at 6,067 needs a return of 240% to break the surface. Similarly in China, even though the run up from the trough has been at 55% from 1,793 on the Shanghai A share index, it will still need a run up of 130% before it can break the surface. (Figure: 4) Figure: 5 – Underwater perspective - China $120

$100 $80 $60 $44

$40

3-Jan-04

3-Jan-02

3-Jan-00

3-Jan-98

3-Jan-96

3-Jan-94

3-Jan-92

$0

Source: MSCI, Thomson DataStream, Reuters 3000xtra

$28 3-Jan-08

$45

$20

3-Jan-06

$20

The ranking favors countries with higher potential return to offer from the current levels and disfavors those indices which have already witnessed a significant run up. Saudi Arabia, UAE, Kuwait and China are ranked higher. India gets the least rank on this parameter.

The time duration of the downtrend journey from the peak to trough has been severe than the previous down trends for majority of the markets taken for comparison.

3. Speed The time duration of the downtrend journey from the peak to trough has been more severe than the previous down trends for majority of the markets taken for comparison. There are very few exceptions. Kuwait has witnessed more severe downturns which lasted for 17 months on an average in the past as compared to the current one which had lasted only for 9 months. (Figure: 6) The current downturn started in June 2008 and ended in March 2009. The most severe down turn in Kuwait was witnessed in Oct 1997 to Jan 2001, a 39 month decline to the trough value. Figure: 6 – Peak to Trough duration (Months) Current Vs Historic Average 42 39

37

Historic Average Current Move 17 14

12 5

17 12

13 7

7

5

12 9

1 Qatar

UAE

Saudi Arabia

S&P 500

India

China

EM

Kuwait

Source: MSCI, Thomson DataStream, Reuters 3000xtra

Kuwait Financial Centre “Markaz”

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RESEARCH June 2009 This parameter signifies the strength of the trough value. A shallow period of decline in the markets as compared to previous down turns may result in further erosion. Among the markets, Kuwait has been ranked low on the scale of peak to trough duration, whereas Qatar, UAE and Saudi Arabia are ranked the highest. Figure: 7 â&#x20AC;&#x201C;Trough to Peak Duration (Months) Current Vs Historic Average Among the markets, Kuwait has been ranked low on the scale of peak to trough duration, whereas Qatar, UAE and Saudi Arabia are ranked the highest.

38

Historic Average

26

Current Move 15

15 7

EM

16

13 6

China

4

12

3

2

2

UAE

S&P 500

India

2

2

2

Saudi Kuwait Qatar Arabia

Source: MSCI, Thomson DataStream, Reuters 3000xtra Another complementing parameter that is used to evaluate speed is the duration from the trough to peak. On a whole, we see that the current movement from the trough values to be at its infancy stages. The previous cycles have been far more elongated. Majority of the markets are currently in their 2nd and 3rd month from their trough. S&P 500 has historically witnessed an average trough to peak period of 38 months. The current run up is just 2 month old! The last trough in S&P 500 was seen in Oct 2002 and the upward journey from that point lasted till Oct 2007. Similarly, Kuwait has also witnessed longer bull market cycles averaging at 26 months. (Figure: 7)

S&P 500 has historically witnessed an average trough to peak period of 38 months.

We rate all the markets as positive on this parameter. We believe that the current run up is in its infancy stages over a longer term perspective. For UAE, the gap between the historic average and the current move is too low due to the prolonged bear market. UAE posted a peak in Nov 2005, post this, the markets has been in a bear market till Feb 2009. Due to this, the UAE markets has witnessed only one bull market rally from July 2005 till Nov 2005. 4. Scale Over a short to medium term outlook, we believe that some of the markets are over heated as the current rally has been stronger than any previous rally. It has to be noted from a macroeconomic perspective, the current global recession is still looking better than just only the great depression. Therefore, we would favor those markets which have seen lesser price appreciation as compared to the previous upturns.

Kuwait Financial Centre â&#x20AC;&#x153;Markazâ&#x20AC;?

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RESEARCH June 2009 Figure: 8 â&#x20AC;&#x201C; Average monthly gain trough to peak (%) Current average gain vs historic average gain 36% Historic Average

29%

Current Move 24%

23%

India stands out very clearly as the market which has witnessed the highest average monthly return in the current trough to peak period.

18%

17%

9%

10% 9% 8% 6%

7%

9%10% 5%

3%

India

Qatar

Saudi S&P Kuwait EM Arabia 500 Source: MSCI, Thomson DataStream, Reuters 3000xtra

China

UAE

India stands out very clearly as the market which has witnessed the highest average monthly return in the current trough to peak period. In a span of 2.5 months from the trough the benchmark index has gained 72%. This results in average gain per month of 36%!. While the historical average of such gains for similar period has been 9%. (Figure: 8) Similarly, S&P 500 has also had gains which are higher than its historic averages. The historic average monthly gain from trough to peak for S&P 500 has been at 3%, whereas the current gains are at 17%. However, for China, the current gains are far lower than historic gains. The current monthly average gain at 9% is far lower than historic average at 24%.

However, for China, the current gains are far lower than historic gains. The current monthly average gain at 9% is far lower than historic average at 24%.

Since the current run up is just 2-3 months for most of the markets, we compared the trough to peak returns for markets during their first 2-3 months of previous bull runs. This provides a better like to like comparison of the period immediately after markets post a trough. Even in such a comparison, Indian markets continue to look stretched at the current levels. (Figure: 9). Figure: 9 - % Gain post trough current period compared to similar period gain historically Historic Average

72%

Current Move

66%

59% 56%55% 47% 38%

34% 28% 22%

21% 13%

12%

India

EM

Qatar

China

Saudi Arabia

15%

S&P 500

12%

Kuwait

15%

UAE

Source: MSCI, Thomson DataStream, Reuters 3000xtra Kuwait Financial Centre â&#x20AC;&#x153;Markazâ&#x20AC;?

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RESEARCH June 2009

We recommend underweight on both the Emerging market basket and India.

The ranking favors markets which have witnessed lesser returns as compared to historical averages. UAE, China and Kuwait are rated high on the basis of speed. India, EM, S&P 500 and Qatar are rated low.

B. Investment conclusion Taking the various rankings and using the weights as provided in the methodology section (appendix: 1) the investment themes are constructed. We believe that, some of the markets look overheated from a short to medium term perspective. We recommend underweight on both the Emerging market basket and India. We believe that both these markets are currently stretched. We rate UAE as the only overweight as the correction in the markets had been steep and there has been a very marginal recovery from the trough levels, thereby providing a possibility of further gains with limited downside. We rate all other markets as neutral. (Table: 1) Table: 1 – Investment themes Risk

Scale

Speed

Overall Neutral

EM

Under Weight

India

Under Weight

China Saudi Arabia

Neutral

Kuwait

Neutral

UAE Qatar Source: Markaz research

We rate UAE as the only over weight as the correction in the markets had been steep and there has been a very marginal recovery from the trough levels

Underwater

S&P 500

Neutral Over Weight Neutral

We had initiated an underweight on India & China in the report China and India: Too Much Too Fast in October 2007. This is the period in which both the Indian benchmark (Sensex) and the Chinese benchmark (SSEA) were near their peaks. In the review of the bubble scale which was presented in the report then, we see a substantial fall in prices. (Figure: 10 & Figure: 11). Currently, due to the significant run up post the trough as compared to its historic averages and lower duration of the current recovery, we again become cautious on India. However, China’s current return is lesser than its historic averages, we recommend a Neutral on China.

Kuwait Financial Centre “Markaz”

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RESEARCH June 2009 Figure: 10 – Bubble scale - India 6000

5000 Re-based to 100

Data period Nikkei 225: Jan 1965 - May 2009 Nasdaq: March 1980 - May 2009 Bombay 30 Sensex: Jan 1990 - May 2009

4000 Japan 3000

2000

Nasdaq India

1000

0

Source: MSCI, Thomson DataStream, Reuters 3000xtra Figure: 11 – Bubble scale - China 6000 5000 4000 3000 2000

Re-based to 100 Japan

Data period Nikkei 225: Jan 1965 - May 2009 Nasdaq: March 1980 - May 2009 Shanghai Composite: Jan 1991 - May 2009

Nasdaq China

1000 0

Source: MSCI, Thomson DataStream, Reuters 3000xtra

Kuwait Financial Centre “Markaz”

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RESEARCH June 2009 Appendix 1: Methodology 1. Risk Risk and Return historically have an inverse relationship. This can be seen in the individual risk & index trend charts in appendix-4. We measure risk by using Markaz Volatility Index (MVX), which provides a like to like comparison for the developed markets, emerging and the GCC markets. The current risk levels among the markets are compared to the levels witnessed during the collapse of Lehman brothers during September 2008. Majority of the markets in coverage witnessed a significant spike in risk levels during the period between September 2008 – October 2008. The comparison of current risk levels to this yard stick provides a measure of the increase/decline in risk levels in individual markets. Higher the decline in risk levels as compared to the yard stick, we believe is more positive as compared to lesser declines and even higher risk levels as compared the yard stick in some cases. Among the markets the ranking favors markets with a fall greater than 60% in their MVX levels. Post this, the rank is reduced for all the markets with a fall between 50 – 60% in MVX Levels. Figure: 12 - Methodology

Risk | Weight: 25% Compares the current risk levels to levels seen during the collapse of Lehman brothers Underwater perspective | Weight: 25% Measurement of run up from the trough to current levels and extent required to breach the previous peak

Investment Decision

Scale & Speed | Weight: 50% Both the factors measure the momentum of the current run-up as compared to previous run ups

Scale | Weight: 25% 1.Duration from peak to trough 2.Duration from trough to peak

Speed | Weight: 25% 1. Average % Gain per Month 2. % Gain Current Run up compared to similar period in the past

Source: Markaz research 2. Underwater perspective Majority of the equity markets peaked out in late 2007 and some in early 2008. But the trough levels in the markets were varied. Some witnessed the formation of a trough in late 2008 and some in early 2009. The underwater perspective provides a measure of the extent of damage that has occurred at an index level and its comparison to the previous down turns in the equity markets. The measure also provides the extent of run up required to breach the previous peak. Kuwait Financial Centre “Markaz”

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RESEARCH June 2009 The higher the damage and higher the distance that need to be traveled to reach the surface, (previous peak) we believe is more attractive. A quick run up from the trough levels and lower distance to previous peak, we believe is unattractive taking the current economic back drop into consideration. 3. Speed Speed comprises of two measures: 1. Peak to trough duration and 2. trough to peak duration. The latter measures the speed at which the markets have climbed back to peak levels from their trough levels and compares it to the duration of the recent run up. The higher the similarity between the durations the lower the possibility of further run up. We would prefer a lesser duration taking into consideration the one off economic event we are in currently. The first parameter measures the historic durations of the fall from the peak to trough values and compares it the duration of the recent peak to trough movement. Higher the current duration as compared to historic durations provide to lower possibilities of further fall in the markets. 4. Scale Scale comprises of two measures: 1. Average percentage gain per month during the move from trough to peak and 2. Percentage gain in the current period and comparison to a similar period in the history when the markets have turned after making a trough. The objective of both the measures is to conclude whether the current run up has been too quick. We would prefer a slow pick up as compared to historic data. Scoring The selected universe size for our study includes 8 markets and we have used six parameters (parameters discussed above). For each of the parameter, markets are compared on a relative basis to arrive at a rank. All these ranks are then weighed using pre-determined weights (as provided in the methodology chart: figure: 12) to arrive at a composite score, three ranges are created to provide for overweight, neutral and underweight. Index levels as on the date of report: Markets US EM India China Saudi Arabia Kuwait UAE Qatar Source: MSCI,

Index S&P 500 MSCI EM Sensex Shanghai A TASI

Peak Index Level 1565 1338 20687 6396

Trough Index Level 677 454 8160 1793

20635 4130 Price Index 15655 6392 NBAD Index 8092 2425 QSI 12893 4230 Thomson DataStream, Reuters 3000xtra

Current Index Level 903 756 14061 2783 6067 7715 2792 6710

Kuwait Financial Centre â&#x20AC;&#x153;Markazâ&#x20AC;?

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RESEARCH June 2009 Appendix 2: Markaz Volatility Index – Methodology Markaz Volatility Index (MVX) follows the following steps for its calculation. Calculate 120-day Exponentially Weighted Volatility with a Lambda of 90%

• Calculate a “factor” based on movements more than +/-0.5% daily (B)

Adjust A with B

• •

Index the findings with base date of 1st Jan 2004 as 1000

The MVX has a base date of 1 Jan 2004, for all the indices which have data from 1st Jan 2004. The average of the below mentioned parameters for all the countries is taken as the base value and converted into 1000. MVX is calculated based on Exponentially Weighted Moving Average (EWMA) for a period of 120-days Using EWMA provides more weight to recent volatility than historic. MVX also considers a second parameter i.e., the number of days during the previous 120 trading days where index trades outside a pre-set level. Presently, this level is +/-0.5% based on historic relationships (refer table below). Any movement outside this band indicates heightened level of volatility. The second parameter is reinforcement to the first parameter and may be influenced by the first parameter. However, since the methodology is uniformly applied across all the markets, the model is strengthened by the second parameter.

MVX

% Number of days of deviation (Updated till April '09) Saudi Abu MSCI Kuwait Qatar Oman Dubai Bahrain S&P Arabia Dhabi EM Less than +/-0.25% 16 31 23 31 15 23 42 22 28 +/-0.25% & +/-0.50% 16 23 16 21 15 18 26 19 20 +/-0.50% & +/-0.75% 11 17 11 14 13 14 13 16 14 +/-0.75% & +/-1.00% 10 12 9 10 8 10 9 11 11 +/-1.00% & +/-1.25% 10 5 7 7 10 8 4 8 7 +/-1.25% & +/-1.50% 7 4 6 3 8 6 3 8 4 +/-1.50% & +/-1.75% 5 3 5 3 7 5 1 3 4 +/-1.75% & +/-2.00% 4 2 3 3 3 3 1 3 2 +/-2.00% 22 4 21 8 21 13 2 11 10 Total 100 100 100 100 100 100 100 100 100 Note: Timeline observation - 30 Jun 04 – 31 Mar 09

GCC 26 20 15 12 8 5 3 2 9 100

Source: Markaz Research. Note: Indices used - Saudi Arabia: TASI, Kuwait – Price Index, Qatar – Doha Market Index, Oman – Muscat SM Index, Abu Dhabi – ADI Index, Dubai – DFM Index, Bahrain – BAX Index, EM – MSCI EM, S&P – S&P 500 Index & GCC – MSCI GCC Index

Kuwait Financial Centre “Markaz”

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RESEARCH June 2009 Appendix 3: Yearly returns - 2008 was a year of negative returns across all the markets Emerging Market Performance

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

ARGENTINA BRAZIL CHILE CHINA COLOMBIA CZECH REPUBLIC EGYPT HUNGARY INDIA INDONESIA KOREA MALAYSIA MEXICO MOROCCO PERU PHILIPPINES POLAND RUSSIA SOUTH AFRICA TAIWAN THAILAND TURKEY EM WORLD F S&P 500

1 2 3 4 5 6

Saudi Arabia UAE Kuwait Bahrain Qatar Oman

Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Emerging Markets Returns 9 17 22 -27 30 -26 -22 -51 99 25 60 66 -5 -55 -21 38 23 -44 62 -14 -22 -34 103 30 50 41 75 -58 -6 -16 2 -31 36 -17 -6 -22 80 25 18 26 21 -37 -23 35 -26 -44 10 -32 -26 -16 81 -1 16 78 63 -52 -28 7 38 -45 -19 -41 37 18 59 126 102 11 13 -28 -21 29 -24 -1 4 1 -4 41 54 77 43 30 52 -45 11 46 25 -32 80 -46 -44 -5 81 119 154 15 55 -54 -19 104 93 -9 11 -28 -10 29 31 88 16 31 13 -62 -32 -4 10 -23 85 -23 -21 6 74 16 35 49 71 -65 7 25 -75 -32 92 -63 -11 38 70 45 13 70 51 -58 -5 -38 -67 138 90 -50 46 7 33 20 54 11 30 -56 4 25 -69 -32 112 -17 2 -3 23 12 -2 33 42 -43 -22 17 52 -34 79 -22 16 -15 30 45 45 39 9 -44 19 33 33 22 -14 -24 -17 -13 43 18 9 63 44 -13 22 -3 18 -42 16 -27 15 27 88 0 29 52 86 -42 -12 17 -63 13 2 -45 -20 -30 39 24 20 55 38 -54 -5 57 -24 -8 31 -5 -29 -1 33 59 21 35 23 -56 -28 151 112 -83 246 -30 53 14 70 4 69 54 23 -74 17 -20 -11 -30 53 -20 -20 23 40 41 24 17 15 -40 -30 39 -7 -21 52 -45 9 -25 40 7 3 16 5 -49 -6 -38 -74 11 47 -57 3 24 134 -4 5 7 41 -50 -6 32 111 -54 244 -46 -34 -36 122 38 52 -9 70 -63 -7 4 -13 -28 64 -32 -5 -8 52 22 30 29 36 -54 19 12 14 23 23 -14 -18 -21 31 13 8 18 7 -42 34 20 31 27 20 -10 -13 -23 26 9 3 14 4 -38 GCC Market Performance 7 12 28 -29 45 11 8 4 76 85 104 -53 41 -57 -18 24 15 32 88 103 -40 34 -56 39 40 39 -40 -9 -7 27 39 102 34 79 -15 25 -41 17 49 -5 1 -18 -2 3 28 33 24 1 24 -34 35 -1 -8 37 37 70 65 70 -36 34 -30 8 26 141 -52 10 -20 -24 26 42 24 44 14 62 -40

YTD - Till Apr 09

$1 Invested in 2000

-9 33 21 12 5 0 5 -11 18 32 20 12 -2 -2 7 11 -13 28 5 27 10 12 17 -3 -3

0.97 2.86 2.27 2.03 11.14 5.68 4.57 1.63 2.40 4.87 2.94 1.60 2.25 2.64 6.16 1.27 1.14 3.28 2.04 1.00 2.48 1.24 1.99 0.73 0.66

17 2 -3 -11 -20 -7

2.53 2.57 5.17 1.56 4.28 2.51

Note: All Country level indices in the emerging market pack are MSCI TR Indices Source: MSCI, Thomson DataStream, Reuters 3000xtra Appendix 4: Markaz Volatility Index Trend Saudi Arabia MVX Saudi (RHS)

16000 14000 12000

18000

12000

8000

10000

6000

8000

2000 0

MVX Kuwait (RHS)

14000

10000

4000

Kuwait Index (LHS)

16000

6000 4000 2000 0

5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0

3-Jan-04 30-Mar-04 19-Jun-04 5-Sep-04 28-Nov-04 21-Feb-05 15-May-05 1-Aug-05 19-Oct-05 22-Jan-06 16-Apr-06 3-Jul-06 20-Sep-06 13-Dec-06 14-Mar-07 3-Jun-07 15-Aug-07 5-Nov-07 30-Jan-08 23-Apr-08 14-Jul-08 5-Oct-08 31-Dec-08 25-Mar-09

Saudi Index (LHS)

3-Jan-04 29-Mar-04 16-Jun-04 5-Sep-04 30-Nov-04 26-Feb-05 16-May-05 3-Aug-05 24-Oct-05 28-Jan-06 17-Apr-06 5-Jul-06 25-Sep-06 20-Dec-06 18-Mar-07 5-Jun-07 22-Aug-07 19-Nov-07 12-Feb-08 3-May-08 21-Jul-08 15-Oct-08 11-Jan-09 31-Mar-09

22000 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0

Kuwait

Kuwait Financial Centre “Markaz”

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600

400

200

0

India

MVX BSE Sensex (RHS)

20000 6000

15000

10000

5000

0

Appendix 5: Underwater Trends S&P 500

$80

$58

$60

$43 7000

5000

4000

3000

0

$120

$120

$100

$100

$20

$20

$0

$0 SSEA Index (LHS)

$60

$40

$52

$44

1-Jan-08

800

1-Jan-06

1000 S&P Index (LHS)

1-Jan-04

12000 9000

12000 8000 14000

10000 10000 7000 12000

8000 8000 5000

6000 6000 4000

4000 4000

Dubai Index (LHS)

1-Jan-02

1200 1800

1-Jan-00

MVX EM (RHS)

1-Jan-98

1400

11000 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0

1-Jan-96

EM

1-Jan-94

0

1-Jan-92

0

1-Jan-04 16-Mar-04 31-May-04 13-Aug-04 28-Oct-04 13-Jan-05 1-Apr-05 16-Jun-05 31-Aug-05 15-Nov-05 2-Feb-06 20-Apr-06 6-Jul-06 20-Sep-06 5-Dec-06 23-Feb-07 10-May-07 25-Jul-07 9-Oct-07 24-Dec-07 10-Mar-08 23-May-08 11-Aug-08 24-Oct-08 12-Jan-09 30-Mar-09

2000

2-Jan-04 31-Mar-04 23-Jun-04 8-Sep-04 1-Dec-04 28-Feb-05 23-May-05 8-Aug-05 31-Oct-05 18-Jan-06 14-Apr-06 7-Jul-06 22-Sep-06 15-Dec-06 14-Mar-07 6-Jun-07 22-Aug-07 14-Nov-07 31-Jan-08 25-Apr-08 16-Jul-08 9-Oct-08 25-Dec-08 23-Mar-09

2000

1-Jan-90

14000

MVX Qatar (RHS)

27-May-04 2-Aug-04 10-Oct-04 27-Dec-04 10-Mar-05 17-May-05 24-Jul-05 29-Sep-05 11-Dec-05 23-Feb-06 2-May-06 8-Jul-06 13-Sep-06 10-Dec-06 5-Mar-07 23-May-07 12-Aug-07 1-Nov-07 31-Jan-08 22-Apr-08 10-Jul-08 5-Oct-08 6-Jan-09 29-Mar-09

4-Jan-04 31-Mar-04 23-Jun-04 15-Sep-04 15-Dec-04 14-Mar-05 6-Jun-05 29-Aug-05 27-Nov-05 26-Feb-06 21-May-06 13-Aug-06 13-Nov-06 8-Feb-07 3-May-07 26-Jul-07 23-Oct-07 22-Jan-08 15-Apr-08 8-Jul-08 5-Oct-08 4-Jan-09 29-Mar-09

Qatar

1-Jan-88

$52

1-Jan-00

1-Jan-97

1-Jan-94

BSE Index (LHS)

1-Jan-91

EM Index (LHS)

1-Jan-88

2-Jan-04 31-Mar-04 25-Jun-04 22-Sep-04 17-Dec-04 15-Mar-05 9-Jun-05 5-Sep-05 30-Nov-05 24-Feb-06 23-May-06 17-Aug-06 13-Nov-06 7-Feb-07 4-May-07 31-Jul-07 25-Oct-07 21-Jan-08 16-Apr-08 14-Jul-08 8-Oct-08 2-Jan-09 31-Mar-09 Qatar Index (LHS)

1-Jan-85

1-Jan-82

1-Jan-79

$40

1-Jan-76

25000

1-Jan-73

1-Jan-04 6-Apr-04 9-Jul-04 8-Oct-04 13-Jan-05 20-Apr-05 20-Jul-05 25-Oct-05 31-Jan-06 10-May-06 9-Aug-06 14-Nov-06 20-Feb-07 28-May-07 28-Aug-07 28-Nov-07 29-Feb-08 10-Jun-08 11-Sep-08 19-Dec-08 30-Mar-09

1600

1-Jan-70

1-Jan-67

1-Jan-64

RESEARCH June 2009

Dubai MVX Dubai (RHS)

16000

6000 10000

8000

3000

2000

6000

4000

1000 0

2000

0

S&P 500

1600

MVX S&P (RHS)

1400

1200

1000 800

600

400

200

0

$80

10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0

7000

China

6000 MVX SSEA (RHS)

6000

5000 5000

4000 4000

3000 3000

2000 2000 2000

1000 1000 1000

0 0

Emerging Markets

$56

$59

$39

Kuwait Financial Centre “Markaz”

15


$120 $120

$100 $100

$80 $80

$60

$40 $35

$20 $20

$0 $30 $41

$20

$37 9-Mar-09

9-Mar-08

9-Mar-07

3-Jan-08

3-Jan-06

3-Jan-04

3-Jan-02

3-Jan-00

3-Jan-98

$40

11-Aug-08

UAE $40

11-Aug-07

$20

$45

11-Aug-06

$29

9-Mar-06

$40 $20

11-Aug-05

$60

9-Mar-05

$60

9-Mar-04

$80

11-Aug-04

$80

9-Mar-03

$100

11-Aug-03

$100

9-Mar-02

$120

11-Aug-02

$120

9-Mar-01

Saudi Arabia

9-Mar-00

$0

11-Aug-01

$0

11-Aug-00

$0 $20 3-Jan-96

$39

9-Mar-99

$59

11-Aug-99

$67

3-Jan-94

$100

9-Mar-98

$120

9-Mar-97

India

11-Aug-98

$20 3-Jan-92

$20

4-Apr-09

4-Apr-06

$44

2-Jan-09

2-Jan-07

4-Apr-03

4-Apr-00

4-Apr-97

4-Apr-94

$80

2-Nov-08

2-Nov-07

2-Jan-05

2-Jan-03

2-Jan-01

4-Apr-91 $52

2-Nov-06

2-Nov-05

2-Nov-04

2-Nov-03

4-Apr-88

4-Apr-85

4-Apr-82

4-Apr-79

$40

2-Jan-99

2-Jan-97

2-Jan-95

$60

2-Nov-02

2-Nov-01

2-Nov-00

RESEARCH June 2009

$120

China

$100 $80

$60 $44

$28

Kuwait

$49

$41

$0

Qatar

$60

$40 $52

$33

$0

Kuwait Financial Centre “Markaz”

16


RESEARCH June 2009

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 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 no representation or warranty, expressed or implied, is made that such information and data is accurate or complete, and therefore should not be relied upon as such. Opinions, estimates and projections in this report constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinion of Markaz and are subject to change without notice. Markaz has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. 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 securityâ&#x20AC;&#x2122;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.

Kuwait Financial Centre â&#x20AC;&#x153;Markazâ&#x20AC;?

17


RESEARCH June 2009

Markaz Research Offerings Strategic Research Missing the Rally (June-09) Shelter in a Storm (Mar-09) Diworsification: The GCC Oil Stranglehold (Jan-09) This Too Shall Pass ( Jan-09) Fishing in Troubled Waters(Dec-08) UAE Outlook (Oct-08) Down and Out: Saudi Stock Outlook (Oct-08) Kuwait Stocks: Fair Value Not Far Away (Sept-08) Mr. GCC Market-Manic Depressive (Sept-08) Global Investment Themes (June-08) To Yield or Not To Yield (May-08) The Golden Portfolio (Apr-08) Banking Sweet spots (Apr-08) The “Vicious Square” Monetary Policy options for Kuwait (Feb-08) Outlook 2008: GCC (Jan-08) China and India: Too Much Too Fast (Oct-07) A Potential USD 140b Industry: Review of Asset Management industry in Kuwait (Sep-07) A Gulf Emerging Portfolio: And Why Not? (Jun-07) To Leap or To Lag: Choices before GCC Regulators (Apr-07) Derivatives Market in GCC (Mar-07) Managing GCC Volatility (Feb-07) GCC for Fundamentalists (Dec-06) GCC Leverage Risk (Nov-06) GCC Equity Funds (Sep-06)

Periodic Research Title

Frequency

Markaz Daily Morning Brief Markaz Kuwait Watch Daily Fixed Income Update KSE Market Weekly Snapshot KSE Market Weekly Review International Market Update Mena Mergers & Acquisitions Thoughts Speak Option Market Activity GCC Asset Allocation & Volatility Investment Outlook GCC Equity Funds

Daily Daily Daily Weekly Weekly Weekly Monthly Montlhy Monthly Monthly Quarterly Quarterly

Sector Research Real Estate ƒ Saudi Arabia (Sep-08) ƒ Abu Dhabi (July-08) ƒ Algeria (Mar-08) ƒ Jordan (Mar-08) ƒ Kuwait (Feb-08) ƒ Lebanon (Dec-07) ƒ Qatar (Sep-07) ƒ Saudi Arabia (Jul-07) ƒ U.S.A. (May-07) ƒ Syria (Apr-07) Real Estate Strategic Research • • •

Real Estate Earning -2009 (May-09) Supply Adjustments Are we done? (Apr-09) Dubai Real Estate Meltdown (Feb-09)


RESEARCH June 2009

Markaz Research Offerings Company Research Saudi Arabia • • • • • • • • • • • • •

UAE • • • • • • • • • • • • • • • • 60% • •

Saudi Investment Bank (Jan-09) Savola Group (Dec-08) Kingdom Holding Co (Dec-08) Al Marai Company (Nov-08) Saudi Kayan Petro Co. (Aug-08) Al Rajhi Bank (Aug – 08) Arab National Bank (July-08) Saudi Telecom Co. (Jun-08, May-09) SAFCO (Jun-08) Banque Saudi Fransi (Jun-08) Riyad Bank (Jun-08) Samba Financial Group(May-08, Feb09) Sabic (May-08, Mar-09)

Research Coverage Market Cap as % of total Market cap

Qatar Sorouh Real Estate PJSC (Feb-09) Gulf Cement Company (Jan-09) Abu Dhabi National Hotels (Dec-08) Dubai Investments (Dec-08) Arabtec Holding (Dec-08) Air Arabia ( Nov-08) Union Properties (Nov-08) Dubai Islamic bank (Oct-08) Aldar Properties (Sept-08, Feb-09) Union National Bank (Aug-08) Dubai Financial Market (July-08) Emaar Properties (July-08) Dana Gas (July-08) FGB (July-08) DP World (July-08) ADCB (Jun-08) Etisalat (Jun-08) NBAD (May-08, Feb-09)

Research Coverage Market Cap as % of total Market cap

48%

Bahrain

Oman

• Galfar Engineering & Cont. (Nov-08) United Development Co. (Feb-09) • Gulf Finance House (Oct-08) • Oman Telecommunications (Sept-08) Qatar Fuel Co. (Dec-08) • Esterad Investment Company • Bank Muscat(Sept-08) (Aug-08) Qatar Shipping Co (Dec-08) • Oman cement (Sept-08) Barwa Real Estate Co. (Nov-08) • Bahrain Islamic Bank (Aug-08) • Raysut Cement Company (Aug-08) • Ithmaar Bank (July-08) Qatar Int’l Islamic bank (Nov-08) • National Bank of Oman (Aug-08) Qatar Insurance Co. (Nov-08) • Tameer (July-08) • OIB (July-08) • Batelco (July-08) Qatar Telecom (Oct-08) Qatar Gas Transport Co. (Oct-08) Research Coverage Market Research Coverage Market Doha Bank (Aug-08) 69% Qatar National Bank (Aug-08, Feb-09) Cap as % of total Market cap 29% Cap as % of total Market cap QEWC (July-08) QISB (July-08) Egypt Jordan Masraf Al-Rayan (Jun-08) Commercial Bank of Qatar (Jun-08) • Commercial Int’l Bank (Oct-08) • Arab Bank (Sept-08) Industries Qatar (May-08, Apr-09) • Orascom Telecom (Sep-08) • Cairo Amman Bank (Oct-08) • Mobinil (Sep-08) Research Coverage Market • Telecom Egypt (Aug-08) Research Coverage Market Cap as % of total Market cap 95% • EFG-Hermes (Jun-08) Cap as % of total Market cap 39%

• • • • • • • • • • • • • • •

Research Coverage Market Cap as % of total Market cap 45%

Markaz Research is available on: Bloomberg Type “MRKZ” <GO>, Thomson Financial, Reuters Knowledge, Zawya Investor & Noozz. To obtain a print copy, kindly contact: Kuwait Financial Centre “Markaz” Client Relations & Marketing Department Tel: +965 2 224 8000 Ext. 1804 Fax: +965 22414499 Postal Address: P.O. Box 23444, Safat, 13095, State of Kuwait Email: info@markaz.com markaz.com


Missing the rally