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Markaz: Stock markets affected by the looming Greek exit from the euro zone.

Kuwait Financial Centre "Markaz" recently released its Monthly Market Research report. In this report, Markaz examines and analyses the performance of equity markets in the MENA region as well as the global equity markets for the month of June.

Performance of Kuwait markets were affected by lack of positive indicators. Both the Kuwait weighted and price index fell by 0.4 per cent and 1.4 per cent, respectively, as value and volume traded dropped by over 40 per cent. Brent crude's upward momentum from April 2015 has been cut short by the looming Greek exit. The Greek government has announced that it won't be able to repay the loan due to IMF on 30th June 2015. The US shale oil production has also not dropped to the extent expected by the analysts and industry stakeholders even while the price of crude oil has almost halved. In a meeting held on June 05th 2015, OPEC (Organization of Petroleum Exporting Countries) decided to keep the oil output signaling a free hand to the members to produce as much crude oil as they want. Currently, the OPEC produces one million barrels a day in excess of the official limit of 30 million barrels per day.

MENA markets had a mixed June with Saudi Arabia (-6.2 per cent), Egypt (-5.3 per cent), Kuwait (-1.4 per cent), and Morocco (-1.4 per cent) ending in the red. While, Abu Dhabi (4.3 per cent), Dubai (4.2 per cent) and Qatar (1.3 per cent) ended on a positive note. Performance of Dubai stock market was largely influenced by the re-listing of Amlak, an Islamic Finance provider. Greek crisis, the celebration of Ramadan and the associated holidays resulted in a huge fall in volume and value traded across the MENA region. Abu Dhabi and Dubai were the star performers in the region gaining 4.3 per cent and 4.2 per cent respectively. Dubai was also the only stock market in the region whose value trade actually increased in June 2015. The S&P GCC index closed the month at 120 points, registering a 3.4 per cent drop in June.

The overall liquidity of the markets in the MENA region dried up in the month of June 2015. The volume fell by 31 per cent and the total value traded fell by 49 per cent. The notable exception to this trend was Dubai and Morocco. Dubai's total value traded increased by 22.3 per cent even while the total trading volume decreased by 5 per cent. Morocco's stock volume increased by 116 per cent while the value traded fell by 23.5 per cent. Retail investors were behind the improved value traded in the Dubai stock market. Dubai stock market heavily traded in Amlak (Amlak Finance PJSC, an Islamic finance company, provides home and real estate financing products and services in the United Arab Emirates) which re-listed on the stock exchange after a gap of almost 7 years. While the analysts have stayed on the sidelines citing insufficient information, the retail investors have looked at the share as a proxy play on the resurgent Dubai property market.

In terms of valuation, P/E of Oman, Abu Dhabi and Bahrain markets continue to be lower than 11x, while Morocco (17.7x), Saudi Arabia (16x) and Kuwait (15x), have relatively higher PE ratios. Jordan (1.28x), Kuwait (1.25x) and Bahrain (0.9x) continue to remain undervalued in terms of P/B, while Morocco (2.2x), Saudi (2.17x), and Qatar (1.87x) remain overvalued.

IMF raises it outlook for Saudi Arabia

The International Monetary Fund raised its outlook for Saudi Arabia's economic growth this year and predicted a much bigger state budget deficit after talks with Saudi officials. Saudi Arabia's GDP is projected to grow at 3.5 per cent in 2015, unchanged from previous year but expects the GDP growth to slow down to 2.7 per cent in 2016. Some of the major notes of the reports were:

The projected deficit translates to around $130 billion as the IMF is projecting Saudi nominal GDP to be at $649 billion in 2015.

This shortfall varies significantly from the budget shortfall that Saudi Arabia is forecasting at $39 billion.

The IMF attributed the decline in oil prices to a substantial decrease in revenues, but its impact on the rest of the economy has so far been limited on account of strong public spending.

Constant decline in oil revenues has emphasized the need for economic diversification, boosting spending efficiency and raising non-oil revenues.

IMF study also expected the Saudi government to issue bonds this year to ease the pressure on the country's foreign reserves.

The bond issues would mark a big shift in the Saudi economic policy. The public debt is very minimal and accounts for just 1.6 per cent of the country's GDP in 2014. Issuing bonds would actually increase the public debt as a per cent of GDP

Saudi Arabia last issued a development bond in 2007. Bond issues would help in strengthening its reserves which it has been drawing down to finance its budget obligations.

As a result of such withdrawals, the net foreign assets at the central bank, which acts as a sovereign wealth fund, has fallen to $679 billion in April 2015 from a record $737 billion in August 2014.

Government bond issues would also benefit the kingdom by building a benchmark yield curve that could be used to develop the corporate debt market and by providing investors with new savings instruments.

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Publication:CPI Financial
Geographic Code:7KUWA
Date:Jul 6, 2015
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