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Thoughts on the GCC markets for 2010

Everyone is making predictions in January and February, trying to estimate how the markets will act in the coming year.

So in the spirit of making a complete fool out of ourselves because, let's be honest, no one really has the foresight to predict what markets will do over the course of a whole year, I will attempt to enlighten you with my thoughts on the coming months of 2010, and what they hold for GCC investors.

I would like to point out to you how this article is structured first before delving into the forecasting. First off I will talk to you about oil, because the GCC economies gyrate with the movements in oil. Secondly, I will mention my thoughts on each single market and what I think are the catalysts to it moving forward, and also what I think will hold it back from achieving great returns.


Oil has had a rollercoaster ride over the past 18 months, most of it an overshoot on both sides. It spiked really fast in the summer of 2008 before crashing at the end of the year and then making an awesome recovery in 2009. Settled at 70-80 dollars, oil is placed pretty favorably for the GCC economies. With the respective governments being conservative, estimating their budgets at 30 to 40 dollars per barrel of oil in Saudi Arabia and Abu Dhabi, to 50 to 60 in Oman and Bahrain.

So at these levels governments are well placed to record budget surpluses, and that is a good indicator for the GCC economies, with liquidity being plush.

Oil has risen over the last six months quite extensively and this is due to the news of a recovery taking place on a global scale. If this continues which most economists think then oil should continue to rise (best case scenario for GCC economies) or stabilize at current levels (most likely scenario). Goldman Sachs and other investment banks' respective research departments are already forecasting $100 oil. That might be an overestimate, like the ones made in 2008 ($200 oil, anyone?).


Before I start, I would like to make a general observation concerning the GCC markets. Compared to global indices as well as emerging market indices, the GCC indices have not recovered as much in terms of trough-to-current levels. Having said that, I will now give an overview of my thoughts on each market (or at least the ones that matter) in the GCC.



Well, Dubai I believe is the weakest market fundamentally, with most of its enlisted members having a hard time coping with the aftermath of Dubai World. However, what makes Dubai so interesting still is the exposure it has to foreign investors. This makes it one of the markets that can make a very quick come back, if positive news starts hitting the market. News that might be worthy of note are: Dubai World restructuring, Arabtec-Aabar deal, real estate prices stabilization, and consolidation of the mortgage market. Of course, these are just some pieces of news that might move the market, as the Dubai Financial Market has become a market for speculators.
However, corporate news will also be high up on the list of market movers, with strong earning companies such as Aramex and Air Arabia being able to bring about positive sentiment.

Abu Dhabi

Abu Dhabi is better placed fundamentally. I expect strong growth in Abu Dhabi this year after a pretty lax year in 2009. This however might be overshadowed by their gloomy neighbors, Dubai. It is sad but true, that many international investors see Dubai as the gateway to the GCC. This is good and bad. It is good, because Dubai is an advanced market and provides opportunities for foreigners. It is bad, because the GCC is not one single market spearheaded by Dubai. It is a group of markets, each with its own characteristics; good and bad. I personally see some strong growth companies in an array of sectors in Abu Dhabi. This is a year for stock pickers. Buy the index, and you will be disappointed. But I expect some double digit returns in some stocks.

Saudi Arabia

There are quite a few factors affecting the Saudi market this year; good and bad.

Again, fundamentally speaking it is well placed as an economy to record some stellar growth this year. Infrastructure spending is set to be rampant. The budget passed makes sure that growth will be there, even if the private sector is late to resurrect from its slur. However, there are other hindrances to a strong upside movement in the Saudi stock market.
The public has a less-educated view of the recovery in Saudi Arabia. The default of two large family-owned businesses last year on their debts still hangs over the banking sector. Because of rights issues and IPOs lined up for 2010, liquidity will be sucked out of the market and that will affect the market adversely.


The best placed economy and market is probably Qatar. It has recovered the most from its trough in 2009, and rightly so. Liquidity is still strong in Qatar, with central bank numbers showing credit growth albeit at a slower rate. The banks are also well placed, with limited exposures to Saudi and U.A.E. toxic debts. Infrastructure spending and a strong financial sector bode well for both economy and market.
Another factor contributing to the strength in Qatar is the state's backing of companies, with capital injections taking place. A wave of consolidations in Qatar has also shown the maturity of the market in understanding what needs to be done.

I will suffice to mention these three markets because I think they are the most mature and hold the greatest potential for foreign investors, as well as local investors (save KSA).

Good luck in 2010 to all. We're going to need it. Be prudent, be frugal, and most of all becareful.

Disclosure: Long Aramex, Air Arabia, and selected stocks in UAE, Saudi Arabia and Qatar