x Abu Dhabi, UAETuesday 16 January 2018

Gulf investors cautiously optimistic

Moves by five of the world's central banks to support Europe are expected to boost confidence while Gulf traders prepare for a policy meeting at the US Federal Reserve.

Focus will be on Europe this week as investors wait to see how the debt crisis in the euro zone unfolds and how policymakers coordinate a response to it. Martin Oeser / AP Photo
Focus will be on Europe this week as investors wait to see how the debt crisis in the euro zone unfolds and how policymakers coordinate a response to it. Martin Oeser / AP Photo

Gulf markets are expected to be buffeted by the headwinds of the global storm this week, as traders feel the effects of coordinated action by no fewer than five of the world's central banks to stave off the effects of the euro-zone's debt crisis.

Central banks including the Federal Reserve, the European Central Bank (ECB), the Bank of Japan, the Bank of England and the Swiss National Bank said they would provide easy access to dollars for the European banking system until the end of the year. The move gave a boost to world stocks on Friday, when Gulf markets were closed.

Saudi's Tadawul All Share Index, the first Gulf bourse to start trading since the liquidity measures were announced, gained 1.68 per cent to 6,173.49 yesterday.

"It's all about Europe," said Marwan Shurrab, the chief trader at Gulfmena Investments in Dubai. "Taking into consideration all the issues, the risks are still there. But to a certain extent the Fed and the ECB have shown their interactivity with the issues and are trying to find a short term and long-term solution to the problems we've seen.

"The coordination action is improving sentiment and improving risk appetite across international markets."

In the US, the Federal Reserve's policy panel will meet on Tuesday and Wednesday, where investors will be looking for any cues to signal that central bankers will step in to support growth in the world's largest economy.

Global markets slumped this month, with UAE and regional markets following suit, dragged down by weak investor sentiment inherited from last month's rout. The MSCI World Index is down 9.9 per cent to 1,176.03 points since the start of last month.

All regional bourses are in the red for the year, with Egypt the biggest loser, falling by more than a third. Qatar has proved the most robust, dipping only about 4 per cent.

Closer to home, the Abu Dhabi Securities Exchange General Index is down 5.2 per cent to 2,576.69 points since January, while the Dubai Financial Market General Index is down 9.9 per cent to 1,467.74 points. Companies listed on the Emirates' bourses have had Dh6 billion shaved off their market capitalisation since August 1.

Europe will continue to dominate the headlines in the coming week. Markets remain alert to the possibility that once again, policymakers will fail to provide a coordinated response to Greece's debt crisis and the prospect of a debt default.

"The investment strategy has become more intensive given the environment. There is terrible amounts of uncertainty," said Saleem Khokhar, the head of equities at National Bank of Abu Dhabi.

Euro-zone debt worries continued to simmer over the weekend. Moody's Investors Service said on Friday that a review on Italy's credit rating would be concluded within the month. Any downgrade on Italy's debt, rated "Aa2" by Moody's, would be the European country's first in almost two decades.

Mr Khokar said he does not expect a return to recession and remains constructive on stocks that provide strong dividend yields. "From a fund management point of view, investors are looking for opportunities with good yields in light of the volatility," he said.

He is positive on Doha Bank's equity, which provides a total yield of 7.5 per cent, outperforming its five-year medium-term notes, which provide 3.99 per cent.

The top 20 dividend yield stocks in the region provide an average yield of 7.2 per cent from the likes of Saudi Arabian Fertilizer Company and Industries Qatar.

Last week, HSBC said it was positive on fertiliser and raised its forecasts for potash. The lender said the sector "is in much better shape" than prior to the global financial crisis in 2008.

US consumers also appear to be in a more optimistic mood, with the Thomson Reuters/University of Michigan preliminary index of consumer confidence rising to 57.8 this month, higher than the 57 estimated by analysts polled by Bloomberg.

Any uptick in consumer confidence in the world's largest economy will provide a boost for oil-rich Gulf states that supply them with petroleum and petrochemicals.

Elsewhere in the region: Kuwait's measure increased 2.3 per cent to 5,980.20 points last week; Bahrain's measure lost 0.4 per cent to 1,265.21; Oman's index fell 0.9 per cent to 5,712.57; and Qatar's index slid 0.2 per cent to 8,347.74.