With normalizing earnings growth coupled with poor market performance is stretching valuations in some cases, full year net profit is expected at around $48 billion, a 15% annual growth, according to Markaz’s 2H GCC outlook.
“GCC corporate earnings came in at $13.78 billion in 1Q11, a 19% YoY growth. The highest growth is expected from the UAE, recovering from losses sustained in the real estate sector in 2010. Consequently, the GCC-wide PE should stay in the 14x-15x range, on par with 14x for MSCI EM and 15x for the S&P 500,” it said.
Kuwait Financial Centre (Markaz) released a semi-annual review of its “What to expect in 2011” highlighting the myriad triggers which negatively impacted the GCC markets in 1H11 and how they altered Markaz outlook on the markets for the remainder of 2011.
“The political turmoil which swept the region at the beginning of the year brought down all markets and proved a drag on earnings. Additionally, various corporate issues (in terms of M&A, debt restructuring etc) in addition to some regulatory and market developments (Kuwait CMA, MSCI not upgrading of UAE and Qatari markets etc) has dampened investor sentiment across the board. Economic Factors: GDP Growth: Real GDP across the GCC is likely to show a growth of about 5% in 2011 followed by a growth of between 5%-7% in 2012. Growth in 2011 has been driven by spiking crude oil prices at the beginning of the year coupled with some return in private credit and broad money growth in addition to increased government spending. Growth in Saudi Arabia is expected to show a surge of 7.5% in 2011 due to high oil revenues, however, this is expected to fall to about 3% in 2012. Kuwait GDP growth is expected to remain stable at about 5% for 2011/2012. Qatar, which has had the world’s highest growth rates over the last few years are expected to show another year of double digit growth at 20% for 2011 before dropping to the more sustainable 7% in 2012,” it said.
Both Saudi Arabia and Kuwait saw jumps in inflation during 2011 due to government grants and subsidies; according to the IMF, CPI is expected to show an increase of 6% for each country in 2011. This should moderate in 2012 as economic growth slows; coming in at 5.6% for Saudi Arabia and 3% for Kuwait.
Fiscal balances are expected to show a jump in 2011 due to high oil prices at the beginning of the year (crude oil was up about 25% in the first quarter) which boosted coffers before declining in 2012 as governments engage in increased public spending as per development plans.
According to the IIF, the consolidated current account balance of the GCC is estimated to reach over $150 billion in 2011 (from $124 billion in 2010) on account of a positive commodities environment.
Money supply growth remained sorely below average in 2010, except in the case of Qatar which saw M2 grow at 23% for the year while other GCC countries saw growth as low as 3% (Kuwait) to 11% (Oman and Bahrain).
At the beginning of the year, the authors were quite positive on all countries in terms of earnings growth due to several rebound stories. However, despite a more or less positive Q1; the report gives a Neutral view on Saudi Arabia, Kuwait and Bahrain earnings going forward. The authors maintain positive views on UAE and Qatar due to a turnaround story in the former (Real Estate) and healthy growth in the latter
Value traded has picked up somewhat in 2011; 1H11 value traded came in at $194 billion, a 10% YoY growth. This was led by Saudi Arabia, where value traded in the first half of the year grew 28% YoY to $155 billion. Qatar was the only other GCC country to show a YoY growth in liquidity, at 33%. Kuwait registered a 47% YoY decline in 1H11 value traded to $13.5 billion. Given the positive YoY growth in liquidity so far this year, the report has a Positive view on the same for Saudi Arabia and Qatar while maintaining a negative view on other markets.