Arabian Gulf stocks rebound, buoyed by global markets

Most Arabian Gulf stock markets rebounded on Wednesday as global equities regained lost territory and investors focused on the strong fundamentals of the region’s economies, analysts said.

The market sell-off that rattled investors globally because of a pick up in inflation and fears the US central bank may accelerate interest rate hikes which unsettled the bond market, seemed to ebb on Wednesday. The UK’s FTSE 100 rose 1 per cent, the first advance in more than a week and the biggest increase in seven months, while the MSCI Emerging Market Index climbed 0.1 percent, the first gain in a week.

In the Gulf region, the exchange in Abu Dhabi rose 1.21 per cent and Dubai climbed 0.83 per cent. Meanwhile, Saudi Arabia's Tadawul gauge, the region's largest, fell 0.66 per cent while Oman sank 0.81 per cent.

“There is no protection from global contagion but large parts of MENA have positive fundamental tailwinds, such as reform and a return to growth in the likes of Egypt and Saudi and, for the broader region, the benefit of higher oil price,” said Hasnain Malik, head of equity research at frontier countries-focused Exotix Capital.

Saudi Arabia, the biggest Arab economy, is implementing an economic overhaul to diversify its income away from oil, while Egypt is undertaking steps to fix its economy after securing a $12 billion aid package from the IMF.

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Prior to the start of the global equity rout last week, Arabian Gulf markets have been rebounding this year, driven by a pick-up in oil prices and economic recovery.

Valuations in the region also are lower than in other markets, giving a boost to local equities, which are unlikely to suffer from a crash similar to the 2008 one, analysts said.

"Overall valuations are lower than emerging markets due to the overriding geopolitical and country specific risks despite the decent earnings growth and elevated dividend yields; thus resulting in overall resilience today when compared to the health of companies and overall heightened valuations in 2008," said Rayan Salam, chief executive officer of Ithmar Capital Partners.

The economic reforms and relatively high oil prices of around $70 a barrel, compared with the troughs of less than $30 a barrel at the start of 2016, have helped buoy markets, especially since a number of companies reported positive fourth quarter results.

“For the first time in three years, corporate earnings turned from negative to positive and we continue to see positive earning upgrades across regional companies,” said Salah Shamma, head of Investment at MENA equity unit at Franklin Templeton Investments.