The outlook for GCC equity market for 2020 is neutral amidst expectation of oil prices remaining around 2019 levels, in the range of $61-65 per barrel and moderate improvement in corporate earnings and non-oil sector supported by government spending, according to Markaz. The outlook is based on evaluation of the countries across four key parameters-economic factors, valuation attraction, corporate earnings growth potential and market liquidity.
The economic conditions in the Gulf region are expected to moderately improve in 2020. As muted oil price outlook indicates lower oil GDP growth, GCC government’s expansionary spending is expected to aid non-oil economic growth while global economic conditions also seem conducive.
Government finances are expected to be strained given the lower oil price outlook and proposed government spending plans, the analysts said in the “GCC Market Outlook 2020.”
Growth in the overall corporate earnings for GCC countries is expected to be modest for 2020. Banking sector is well placed to support corporate earnings growth. While expectations of profit realisation and credit growth remain, profitability might be under slight pressure because of lower interest rates. Real estate and construction could perform slightly better in 2020, given the measures taken by different stakeholders and the proposed government spending. Commodities are expected to perform moderately better with phase one of US-China trade deal agreed upon and decisive UK election supporting quicker resolution of Brexit issue.
From a valuation perspective, except three markets, rest of the GCC markets seem attractive. Following Kuwait’s MSCI upgrade scheduled for May 2020, it is expected to post a higher P/E with increased fund inflows. Liquidity levels in Kuwait have increased.
As the market steps into 2020, the outlook for GCC fixed income asset class is looking promising. High positive yields, better risk-adjusted returns, currencies that are pegged to USD and improving credit quality on back of rising oil prices augur well for their improving stance. On the other hand, investors are wary if the increasing oil prices could lead to a sense of complacency on the reforms front.
The region is geopolitically volatile and key targets including oil infrastructure and facilities. The US, with further escalating the prevailing tensions in the region, has ratcheted up geopolitical premiums, the Markaz report noted.
