Firmer oil prices and improved global economic growth prospects will lead Arabian Gulf equities to generate returns of up to 15 per cent next year, according to Emirates NBD.
The rise comes in line with an overweight recommendation by the bank on global equities for 2017, despite concerns over US share valuations in the medium term.
Gary Dugan, the chief investment officer for wealth management at Emirates NBD, said equities in the Arabian Gulf were forecast to rise by 10 per cent next year, with an additional dividend yield of up to 5 per cent, with recent agreements by oil producers to cut output finally bringing investors back to market.
This contrasts with a gain of just over 4 per cent so far this year by Bloomberg’s GCC 200 Index, which tracks leading stocks throughout the Arabian Gulf.
"It's been strange that we've had oil prices steadily rising from a US$30 a barrel base for much of the year, without a similar rise in equities," he said.
“There was a fear that prices would fall down to $30 [a barrel] before they got back up to $60. I think that risk has now been taken away by the output cut agreement by Opec and non-Opec countries.”
The Dubai bank forecasts that Brent crude futures will average $55 a barrel next year, compared with $46 this year.
Adding to such sentiment was a renewed confidence of an up tick in global economic growth in the coming year, fuelled by fiscal spending promises by US president-elect Donald Trump, Mr Dugan said.
The OECD recently raised its forecasts for US and global growth, predicting that US GDP will rise by 2.3 per cent next year and by 3 per cent in 2018, compared with 1.5 per cent this year.
“With global growth feeling a bit more comfortable and a bit more inflation, corporate profits forecasts [in the region] should also start to rise,” Mr Dugan said.
Regional blue chips such as Emaar Properties and Sabic are also likely to attract increased investment from emerging-market fund managers, particularly those discouraged from increasing exposure to China and India, given increased tensions with the US and monetary issues, respectively.
“They’ll be looking to smaller countries to add to their portfolios and I think that’s where Mena region countries can benefit,” Mr Dugan said.
“The impact could be quite significant given the small scale of our markets.”
Shares in Dubai have dominated their regional peers so far this year, gaining just over 15 per cent, while Abu Dhabi and Saudi Arabia have lagged with gains of just 4.7 per cent and 2.6 per cent, respectively.
Emirates NBD remains optimistic about global equities in its Global Investment Outlook for next year, with the S&P 500 having hit an all-time high last Friday.
“Analysts are becoming increasingly upbeat about the outlook for corporate profits, which helps to mitigate some of the fears of relatively high valuations in some markets,” the bank said in a statement.
Such short-term optimism, however, is accompanied by concern in the medium to long term over US equity valuations.
“A world of low nominal GDP growth, ageing populations and low levels of capital reinvestment by corporates argues for lower not higher valuations of equities,” the bank said.
“We are sympathetic to those that believe that equities are at risk of showing persistent low to negative returns.”
jeverington@thenational.ae
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