Flip through the latest issue of Gulf Weekly.
GCC stock markets have started showing positive signs, but the road to a full recovery may still be long. The current year has seen three out of the seven regional bourses posting profits although the remaining four were in the dumps. Gains were registered in three key markets - Saudi Arabia, Dubai and Abu Dhabi.
The biggest loser so far this year has been the Qatari financial market, which has dipped by 24 per cent despite massive government efforts to lift investors' confidence.
Bahrain Stock Exchange lost nearly eight per cent, the market in Muscat fell by some seven per cent while the Kuwaiti bourse has declined by 5.5 per cent. On the other hand, the Saudi stock market (Tadawul), the biggest bourse in the Arab world, grew by a healthy 12 per cent. The Abu Dhabi market (ADX) followed with an increase of 10.7 per cent while Dubai financial market climbed by 3.2 per cent.
All in all the market capitalisation of the GCC market is put at $565 billion, out of which $267 billion belonged to the Saudi bourse.
What about the markets that plunged? Is there anything to be gained from the slump?
When markets tank they hurt many investors, but at the same time they also provide the opportunity for buyers to pick some good stocks at cheap rates.
Gulf stocks are currently "very cheap", with Qatar offering the best value for money, says Merrill Lynch.
Government support to the financial sector and fiscal stimulus will underpin Gulf economies, but the asset quality of regional banks remains an area of concern, Merrill says.
The MSCI Gulf ex-Saudi index is trading at a 29 per cent discount to emerging markets and has lagged a rally in the oil dependent Russian market.
But the bank cautions that investors need to be selective, noting that the breakeven price of oil for GCC budgets is around $60 per barrel.
Qatar's projected five per cent growth in GDP this year makes it the strongest play in the region, a team of analysts writes in a research note.
Trading at 9.6 times earnings, Saudi shares are the most expensive market in the Gulf, but this reflects "huge" growth potential, they add.
Merrill's top stock pick in the kingdom is petrochemical giant Sabic.
Sabic emerged as the biggest company in the GCC stock arena with a market cap of $38.6 billion. It is followed by Al Rajhi Bank from Saudi Arabia which boasts a market cap of $ 26.3 billion. So far this year, Al Rajhi share gained 17.4 per cent. According to Feiler, the most impressive growth posted within the top 10 shares in the oil rich Gulf region belongs to UAE's Etisalat (nearly 24 per cent).
Experts feel that the GCC along with other emerging markets will recover soon after the US.
These economies are poised to emerge from the crisis sooner than Europe, but it is difficult to predict whether the region will lead the world out of recession.
However investors should maintain a clear understanding of what is cheap and what is not.
The key is to differentiate between a good company and a bad company and make correct market judgements.
Stock analysts say the markets would witness high volatility for another few months while the markets try to reach a bottom. A rally can be expected by the end of the year in the US and the emerging markets, excluding Eastern Europe, will follow this movement. There would not be any strong bull run in Europe as there are concerns in the euro zone due to internal friction between the Western and the Eastern countries.
Despite being bullish on Sabic, analysts say the core petrochemicals and industrial sector will be affected by declines in commodity prices and it would be better to take a cautious posture till commodity prices see some stability on the downside.
Investment companies will find it most difficult to see any clarity on the revenue side, while banks face challenges from declines in investment income, fees and potential increase in non-performing loans (NPLs) and provisions. The year would be a damaging one for real estate companies across the region; however, companies with rental portfolios using cost based accounting standards would be relatively safer bets.
In times of recession an investor needs to maintain a clear understanding of what is cheap and what is not. There is a lot of negative sentiment around. Corporate earning yields are quite negative, there is a pessimistic view and nobody knows how long this will go on. Investors should look at risks in the portfolio, differentiate between a good company and a bad and make correct market judgments.
