(P)GCC Markets Little Short of Disaster

Middle Eastern stock markets far underperformed the rest of the world in 2017 but as the year ended, beaten-down valuations for shares and plans for higher government spending gave investors reason to expect a better 2018.
Egypt’s stock index surged 21.7% in 2017 as economic reforms bore fruit, but the picture in the (Persian) Gulf Cooperation Council states (UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait) was little short of disastrous because of geopolitical tensions, sluggish economic growth and sagging real estate prices, Reuters reported.
Saudi Arabia’s index edged up just 0.2% during the year compared to a 34% leap for MSCI’s emerging markets index. Among other major Persian Gulf markets, Dubai fell 4.6% and Qatar, hit by a boycott imposed by other Arab states, lost 18.3%.
The New Year looks unlikely to be as poor in the Persian Gulf, however, partly because many share valuations have been beaten down to stand in line with, or even below, other emerging markets.
Also, a rise in oil prices in the last few months has let (P)GCC governments slow austerity drives that have slashed economic growth and damaged corporate earnings. Growth is widely projected to pick up moderately in 2018.
“With this backdrop and underpinned by undemanding valuations, we are generally optimistic on the (P)GCC for the year 2018, with the outlook ranging from slightly negative to moderately bullish across the board,” said Bader Al-Ghanim, head of (P)GCC asset management at Kuwait’s Global Investment House.
A Reuters poll of 13 leading Middle Eastern asset managers, released on Sunday, found 54% expect to raise allocations to regional equities over the next three months and none to cut them, the most positive balance since August.
Saudi Arabia’s index edged down 0.1% on Sunday as real estate developer Dar Al Arkan, the most heavily traded stock, sank 5% despite saying it would offer 30% of Dar Al Arkan Properties, a property management firm with assets of SR2.68 billion ($715 million), to the public. It did not specify a date.

Property Market No Better
It is that time of year when the (P)GCC’s plethora of real estate pundits look into their crystal balls to see what the future might hold.
Last year was a particularly difficult for the region as it contended with weak oil prices, political tensions and volatile investor sentiment. The introduction of value-added tax in Saudi Arabia and the UAE from 2018 will inject yet more short-term uncertainty into the market, some commentators have said.
The latest IMF forecast for 2018 expects (P)GCC gross domestic product growth to rebound to 3.3%, largely driven by a turnaround in the UAE, Saudi Arabia and Kuwait.
But whether this new economic confidence filters into the real estate market remains to be seen—with further declines forecast in the UAE’s two main property markets, Abu Dhabi and Dubai.
According to a report by property consultancy Cluttons, the three years up until winter 2017 were “very challenging” for Dubai’s residential market, with capital values dropping by 16.6%. Residential values were estimated to end 2017 down 5 to 7% on 2016 numbers, the consultancy said.
“The introduction of Federal Mortgage Caps and the collapse in oil prices during 2014 have been key catalysts in shaping the market over the last 36 months, alongside the deteriorating global geopolitical backdrop, which also spooked investors,” Cluttons said in a report.
Around 40,000 more residential units will be completed in Dubai in 2018, according to the Property Monitor Supply Tracker. This may put further pressure on rent and sales prices, in particular the secondary market, analysts have said.
According to Cluttons, 2018 still has the potential for values to start “bottoming out” in the second half of the year, but much will depend on the yet-to-materialize “Expo 2020 effect,” the strength of the US dollar and a slowing in both the rate of delivery and type of new residential schemes announced, with “affordable” housing being key to helping the market stabilize.
“On balance, we expect values to decline by an average of 3% to 5% (in 2018),” Cluttons said. “The rental market is expected to mirror the performance of capital values in 2018.”