SPENDING SPLURGE TO BOOST GCC MARKETS IN 2021

Regional and global markets were volatile in the last 12 months, vacillating from negative to positive territory from month to month.

Global markets plunged in the first half of 2020, but many ended up closing higher by the end of the year. The MSCI World Index jumped 14.3% in 2020, while the MSCI Emerging Market Index rose 15.8%.

US equities collectively rose 16.3% in 2020, while the Shanghai A Index grew 13.9%, recovering from setbacks early in the year brought on by COVID-19.

“For 2020, it was ‘a wild and crazy’ market, with the S&P 500 posting both a bear (19 February to 23 March 2020, down 33.93%) and a bull (up 67.88% from 23 March 2020, low),” according to Howard Silverblatt, senior index analyst, at S&P Global in his monthly report. “The declines and gains were uneven, as the quick economic shift from the virus had some groups mostly closing operations (travel, hotels, stores, etc.), while other at-home services and merchandise benefited nicely, picking up the consumer (and business) need.”

Commodity markets were also in a tailspin. While gold benefitted, rising 25.1% in the year as investors parked their funds in the safe haven at a time of a global pandemic and an economic recession, the wider commodity complex declined 23.7%.

Brent crude prices also plunged 21.5% during the year, as demand collapsed amid rising supplies. Both the commodity fared much better in the second half of the year, clawing back some of the losses.

The lower oil price weighed heavily on the S&P GCC Composite Index, which eventually closed 1.7% lower for the year.

Saudi Arabia’s Tadawul Index was the region’s best performing market, rising 3.6% in 2020, despite posting declines of 7.5% in February and 14.7% in March. The only other GCC market index that managed to remain in positive territory for the year was the Qatar QE Index, which eked out a 0.1% gain for the year.

Other Gulf markets ended the year deep in negative territory. Kuwait’s All Share Index was the biggest laggard, falling 11.7%, while Dubai Financial Market Index declined nearly 10%.

Abu Dhabi’s losses, however, were less pronounced, falling only 0.6% for the year. The region’s two smallest markets, Bahrain and Oman, were down 7.5% and 8.1%, respectively.

The outlook seems more upbeat for GCC markets in 2021. The S&P GCC Composite Index’s price-to-earnings (PE) ratio remains an attractive 14.8 times, according to data.

That is in sharp contrast to Emerging Markets Index, which has a PE ratio of 18.2x, and BRIC indices, which are trading at 17.5 times, according to Star Capital data.

Developed markets are trading at far more expensive multiples of 31.1 times, raising fears that they are due for a correction.

Investors looking for bargains will likely find Gulf markets attractive. Most of the GCC countries continue to boast strong fiscal fundamental with investment grade credit ratings.

In addition, oil prices will remain elevated in 2021, according to a new Reuters survey. A poll of 39 economists and analysts conducted in the second half of December forecast Brent crude prices would average USD 50.67 per barrel in 2021, up from USD 49.35 per barrel in a November poll.

“We expect a broad recovery across hydrocarbon and non-hydrocarbon sectors over the period to 2023. Our base assumption is that OPEC+ production cuts, amounting to about 17% of October 2018 production, end in April 2022,” S&P Global Ratings said in a report.

“These assumptions are based on our view that widespread availability of effective immunisation against the coronavirus could come by the middle of next year,” the firm said.

Indeed, quicker vaccine rollouts around the world would accelerate the timelines of an economic rebound as lockdowns and mobility restricted are lifted.

Most Gulf economies have also unveiled budgets that target private sector growth. That bodes well for the blue-chip companies and will stimulate economic growth and spur corporate activity.