JEDDAH, 20 December 2004 — The Gulf Cooperation Council (GCC) stock markets witnessed mixed trends in November with the Eid holidays having its effect in terms of reduced volumes on the exchanges.
While the Saudi Arabian and UAE indices notched strong double-digit gains over the previous month, Omani and Bahraini indices retreated marginally. Kuwait and Qatari markets too witnessed healthy growth during the month. This is mainly attributed to the anticipation of another round of strong macroeconomic performance in the wake of high oil revenues and strong liquidity, according to a report prepared by the Kuwait-based Global Investment House (GIH).
Kingdom’s stock market seems all set to outperform its 2003 growth of 76.2 percent as it notched YTD gains of 87.71 percent till November. The strong 3Q results seem to have reaffirmed the confidence of the investors in the stocks and has acted as trigger for investors to take further positions in the markets.
Almost all the markets in the region have registered significant gains during the first 11 months of this year.
The GIH report said that the market capitalization of the GCC countries would further expand as new listings grow. With new capital market laws being expected to be implemented in most of the GCC countries, the IPO market and the new listings would see substantial growth in 2005.
The GCC region is already in the midst of a construction boom. This has not only helped the performance of cement companies on the regional bourses, but activity has spilled over into real estate sector stocks. There are 25 listed companies - Kuwait (16), UAE (2), Saudi Arabia (4), Oman (1), Qatar (1) and Bahrain (1) - across the GCC region in the real estate sector.
The average P/E multiple for the sector ranges from a high of 42.9 times for Saudi Arabia to a low of 15.7 times for Kuwait.
The average P/BV multiple ranges from a high of 5.2 times for Qatar to a low of 0.9 times for Bahrain. The industry trades at an average P/E and P/BV multiples of 25.4 times and 2.4 times respectively for the entire GCC, and had a market cap of $12.4 billion, which is about 2.75 percent of the combined GCC market cap of $450.1 billion as of October 2004.
Net profits of the real estate sector have grown at 60.4 percent, 59 percent, 58 percent, 53.1 percent and 25.8 percent for Saudi Arabia, the UAE, Bahrain, Oman, and Qatar respectively during 1H of 2004 over corresponding period last year. For Kuwait, combined net profits of the real estate companies in fact declined by 7.4 percent, thereby dragging the growth in net profits for the entire GCC region to 49.6 percent, the report said.
However, 2003 was a blockbuster year for this sector with combined average net profits rising by 56.7 percent from the previous year. The maximum increase in combined net profits of 175.3 percent was recorded in Kuwait, followed by Saudi Arabia (54.3 percent), Oman (48.6 percent), the UAE (30 percent), Qatar (17 percent) and Bahrain (15 percent).
GCC investors’ interest is very high in both real estate property as well as real estate stocks. Bulk transactions concluded by GCC businessmen have been reported in the UAE, Qatar and Bahrain.
Listed companies operating in the real estate market are already among the major players which are implementing multimillion dollar projects across the region.
The GIH report said that the GCC stock exchanges still remain loosely regulated and principally underdeveloped. However, there should be clearcut regulations into place to protect shareholders, investors and corporations alike.
Although the stock exchanges have made headway on a number of these objectives, the report added, there is a great deal of room for improvement. More must be done to develop the markets, pushing the exchanges into an era of international recognition and compliance in standards. This is not to belittle the importance of professional standards but currently, insider trading is not prohibited or penalized, which makes for serious concerns on the part of investors. Detecting and punishing such practices is crucial to maintaining fairness to all investors in the market and protect minority shareholders. The regulation of the primary market needs development. The role of the stock market as a primary market, that is, in raising capital is therefore still negligible. There are also no detailed disclosure rules on mergers and acquisitions.
It is high time that the investors and intermediaries called for a speedier pace of change at the stock exchanges and in the structure of the market supervision, as a change is a must to help protect, support and lead the local capital markets into a better regulated, organized and legislated future.
The market capitalization of the GCC states at the end of November stood at $501.6 billion as compared to $450.1 billion in September. This was primarily due to the phenomenal growth in the Saudi stock market capitalization which crossed the $300-billion mark in November.
The region as a whole saw 3.23 billion shares changing hands in November.
Unlike October, advancers outnumbered the decliners in the GCC markets during November. The region as a whole produced 213 advancing stocks, while registering 139 declining ones indicating a more broad-based rally in the markets. Except Oman market, all the GCC stock exchanges had a positive advance-decline ratio with the UAE leading the way, the GIH report said.