Outlook for Gulf bourses is upbeat despite oil price jitters

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• Most markets have been flat in 2024
• Dubai bucks trend with 8% rise
• Analysts expect a rebound in Q4

The Gulf’s stuttering stock markets are probably not indicating the start of a downturn, analysts have told AGBI, but are a good opportunity for investors to snap up cheaper shares.

Dubai aside, the region’s bourses have been broadly lacklustre this year although heavyweight sectors such as banking and petrochemicals have reported a marked increase in profits.

“Market performance this year has lagged earnings growth, so price-to-earnings multiples have contracted,” says Marwan Haddad, managing director of Azimut Group, which has $110 billion of assets under management.

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“Seasonality is very strong in our region. Q4 is usually a good quarter. There may be some weakness until October, but November and December are more likely to be positive.”

Dubai and Saudi Arabia are “likely to perform the best over the coming three months,” he says.

Saudi Arabia’s index closed on Monday at 11,963 points and is near-flat in 2024. It has fallen to 11,500 points on three occasions this year before rebounding.

• Analysts predict growth despite Saudi GDP fall
• UAE non-oil GDP grows on back of financial sector
• Abu Dhabi-backed RedBird IMI sells The Spectator for $131m

“September historically isn’t a great month for equities, but Western institutions have considerable appetite for Saudi and UAE stocks in particular,” says Julian Bruce, managing director of EFG Hermes’ brokerage in the UAE.

Any dips in prices have led to “pronounced buying”, Bruce says, indicating that “foreign investor enthusiasm for these markets remains strong”.

Abu Dhabi’s benchmark has been in the doldrums since hitting a record high in November 2022, nearly trebling from its value in early 2020. The index has fallen about 12 percent from that peak.

Qatar’s benchmark has rallied from June’s four-year low although it remains in the red for 2024.

“Gulf markets have suffered for a prolonged period,” says Ryan Lemand, co-founder and CEO of Abu Dhabi’s Neovision Wealth Management. The volatility “was mainly due to geopolitical concerns”, he adds, “but this volatility has no bearing on the underlying performance of listed companies”.

In August, foreign investors were net buyers of $892 million of Gulf stocks, according to a report by Iridium. Saudi Arabia’s net inflow was $612 million last month, following an outflow of $310 million in July.

Bruce says Western institutions were especially keen on investing in Saudi banks, pointing out that fresh money entering Gulf markets was a key driver for regional stocks.

“We have a constant stream of new trading accounts being set up,” he says.

Yet foreign investors remain considerably underweight on the Gulf despite the region’s dollar pegs eliminating the currency risk inherent in other emerging markets, according to Haddad.

“Debt-to-GDP ratios are low so governments have plenty of room to borrow to accelerate economic growth,” he says. “Foreign investors should be buying more Gulf stocks – it’s only geopolitics and worries about oil prices that’s deterring them.”

Saudi Arabia, home to the largest and most liquid Gulf bourse, will benefit from imminent US interest rate cuts. Lower rates will enable the government and Saudi corporations to borrow more and accelerate infrastructure spending, says Haddad, which will in turn support company private sector earnings.

“We like infrastructure stocks, also healthcare, tourism, transportation and logistics,” says Haddad. “For petrochemicals there remains huge uncertainty over future Chinese demand, so we prefer Saudi producers with simple business models, volume growth and strong balance sheets.”

Lower interest rates should be positive for Gulf stocks offering high dividend yields, says Bruce.

Saudi stocks rallied in early to mid-August before a renewed slump in oil prices sapped investor confidence across the region.

Brent crude was trading at $71.75 on Tuesday, down from $81.58 on August 26. Various investment banks have published gloomy outlooks for oil, with some forecasting the price could fall to near $60 a barrel.

Lemand says he remains positive on Gulf markets.

“There are fantastic opportunities on a stock-specific basis,” he says. “Several blue-chip stocks pay 7-9 percent dividends, giving you the upside of an equity with the return of a bond.”