Goldman sees $80 trillion emerging nation stock market by 2030

The market value of emerging market stocks may surge more than five fold to $80 trillion in two decades, overtaking developed nations, as China becomes the world’s largest stock market, Goldman Sachs Group Inc said.

Faster economic expansion and growing capital markets may lift emerging nations’ share of world equity capitalization to 55 percent by 2030 from 31 percent on Wednesday, Goldman strategists led by Timothy Moe wrote in a research report.

Institutional investors in developed nations will probably buy a net $4 trillion of emerging market equities, lifting holdings to 18 percent of their total portfolios from 6 percent now, Moe wrote.

In the report on Monday, Moe wrote: “The primary drivers are rapid economic growth and the maturing of equity markets that are at earlier stages of development."

“Developed market institutional asset management pools will need to increase their holdings of emerging market equities.”

The MSCI Emerging Markets Index has more than doubled since the beginning of 2000 even as the MSCI World Index of advanced nation shares dropped about 21 percent.

Emerging economies will expand 6.4 percent as a group next year, compared with 2.4 percent in developed nations, according to forecasts by International Monetary Fund.

Prospects for faster growth spurred investors to add money to emerging market equity funds for a 14th straight week even as they pulled $6.87 billion from global stock funds, research firm EPFR Global said on Wednesday.

The 21 country MSCI emerging gauge has gained 1.2 percent this year, while the MSCI World index declined 4.2 percent amid concern that stagnant jobs growth and spending cuts by indebted governments will hamper economic recoveries in the US and Europe.

The emerging gauge is valued at 14.2 times reported profits, compared with the MSCI World, which trades for 15.1 times earnings, according to data compiled by Bloomberg.

The MSCI China Index of Hong Kong traded shares has slipped 3.4 percent this year and the Shanghai Composite Index, comprised of stocks traded mostly by mainland Chinese investors, has dropped 18 percent.

The market value of Chinese shares may climb to $41 trillion by 2030 from $5 trillion on Wednesday, topping the $34 trillion projection for the US, Moe wrote.

Moe wrote: “Emerging equity market capitalization could increase substantially."

Moe also added: “Investors, financial intermediaries and developed-market corporates will have significant opportunities as well as challenges from these shifts in the equity landscape.”

GCC has the Best Global Investment Climate

The six Gulf Co-operation Council states are witnessing the best investment climate and marking the highest growth in a decade. "This is substantiated by huge market capitalisation which has taken place and a likely entry of new initial public offerings (IPOs)", Hassan Salim Al-Ammari, CEO, Al-Tawfeek Co. for Investment Funds, said on June 15. The occasion was the launch of Shariah-compliant GCC Equity Fund, a Bahrain Monetary Agency-approved open-ended fund with a target capital of $100m.

The company has decided to invest the fund in listed and unlisted Shariah-compliant equity and equity-related securities in the GCC countries - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. Ammari said: "We'll invest 70% of it in listed and the remaining 30% in unlisted Shariah-compliant equity and equity-related securities in the region".

The new fund offers an opportunity to invest in the GCC equity markets. It reflects Al-Tawfeek's confidence on the outlook of the GCC economies. It will broaden Al-Tawfeek's range of investment funds and provide an opportunity to invest in an exciting era of the GCC, dominated by ongoing economic reform and a period of extraordinary growth reminiscent of the oil boom of the 1970s.

Al-Tawfeek company is a member of the Saudi Dallah AlBaraka Group, a leading provider of Shariah-compliant investment funds in the region. Dhafer Salih Al-Qahtani, general manager of the company, gave a presentation on the fund and its focus on the GCC. The fund offers bimonthly liquidity after three months with a minimum subscription of $15,000 for individuals and $100,000 for institutions.

The fund was launched at a time when the region was at the centre of world attention. In 2004, the GCC posted its highest growth in a decade. The region's corporate earnings had a growth of more than 50% compared to 40% in 2003. The combined net oil exports of the GCC exceeded $180 bn in 2004, up $35 bn from 2003.

With over $765 bn in market capitalisation and a number of new entrants (new IPOs) expected from the Saudi-based National Commercial Bank and Almarai, a number of new investment opportunities are bund to follow. With plans underway for a new capital market law in Saudi Arabia and Qatar, the introduction of Bahrain's Financial Harbour and the launch of the Dubai International Financial Centre, the region aims to position itself among international financial markets, creating further depth and diversity.

Dubai-based SHUAA Capital has been appointed as the investment manager of the fund. "SHUAA Capital has a 25-year history and a strong track record of investing in the GCC equity markets", its Managing Director, Asset Management Group, Haissam Arabi, said. SHUAA Capital has won the 2004 Euromoney award for excellence for being the "best equities house in the UAE". In addition, SHUAA Capital has successfully completed a variety of transactions for a number of institutions in the UAE.

Bahrain-based Gulf Clearing Co. has been appointed as custodian and administrator of the fund. The firm is a big fund custody and administration service provider with assets under custody exceeding $5 bn, according to its Vice President Ali Al-Laith.

A Shariah board will advise on the fund's Shariah-compliance. The board includes Dr. Abdul Sattar Abu Ghuddah, Abdullah Ibn Suleiman Al-Manai, Dr. Abdul Latif Al-Mahmoud, Dr. Ezzedine Bin Mohammed Khouja, and Dr. Ahmad Mohieldin Ahmad.

Al-Tawfeek is a specialised financial firm incorporated in 1992 in the Cayman Islands. It is one of the financial arms of Dallah AlBaraka Group. The group is one of the largest conglomerates in Saudi Arabia with total assets exceeding $12 bn, and with companies operating from more than 40 countries. Since its inception, Al-Tawfeek has launched a number of Shariah-compliant investment funds covering a variety of asset classes including equities, corporate debt, real estate, private equity, venture capital, leasing and reconstruction. It has yielded high returns for its investors in a number of Shariah-compliant investment funds.

NBAD to launch GCC equity fund; bullish on Gulf and Mena markets Monday, February 11, 2008

NBAD to launch GCC equity fund; bullish on Gulf and Mena markets
Monday, February 11, 2008

ABU DHABI — The National bank of Abu Dhabi (NBAD) which is bullish on GCC and Mena markets will be launching a GCC equity fund in the first quarter of 2008.


"We are very optimistic on the GCC and Mena region due to accelerating liberalisation of markets and economies, more privatisation, more regional integration, sustainable and strong organic domestic growth. Our newly formed internationally credentialed team will be launching a very exciting GCC equity fund in the first quarter of 2008," revealed Nazem Al Kudsi Chief Investment Officer, Asset Management Group, NBAD.

He expects 2008 and 2009 will be positive years as well but cautioned investors to be patient. "The UAE, GCC and Mena markets are relatively new and are emerging. Hence, just like any growing market there will be huge growth spurts, followed by slowdowns and consolidations. It will not be a straight line up," he said.

But, for the patient, non-emotional investors who can ignore the day-to-day coughs and sneezes of the market the rewards should be plentiful. "We think the outlook for IPOs in 2008 and 2009 is very good, the broad economy is still strong and there is still an appetite from foreign investors for an attractive investment in the region," Al Kudsi concluded.

National Bank of Abu Dhabi (NBAD)'s local funds swept Gold, Silver and Bronze medals as they outperformed the market and other local funds in 2007, according to a study by Zawya-Dow Jones.

"NBAD research and portfolio management team put together outstanding performance numbers in 2007 as NBAD Growth fund, the top performing fund in the UAE, was up almost 63 per cent on a total return basis and beating the market by nearly 18 per cent or 1,800 basis points," he said.

NBAD UAE Trading Fund, the second top performing fund in the UAE, was up 60.31 per cent while NBAD UAE Distribution Fund, the third top performer in 2007, was up 59.23 per cent. NBAD UAE Growth, Trading, and Distribution Funds were the first three in the top 10 list of all funds in the UAE based on their performance in 2007 while NBAD Islamic Fund also featured in the top 10 list. NBAD UAE Growth Fund features in the top 10 list of all funds in Mena as the 6th best fund in the entire region last year.

KSE trading seen surging after 8.4% growth in Jan

KSE trading seen surging after 8.4% growth in Jan

GCC markets witnessed mixed trends as four out of six regional indices recorded monthly gains in Jan-08. However, the biggest bourse in the region in terms of market capitalization , Saudi Arabia, witnessed strong selling pressure as it benchmark index reported monthly decline of 13.4% in Jan-08. However, buying interest was seen in the Kuwait markets as its index recorded 8.4% growth during the month. We believe that the trading activity is likely to increase in the coming month as the investors take positions after analyzing annual results and corporate announcements.

Kuwait Budget 2008/09
Kuwait’s Cabinet has approved the country’s budget for the fiscal year 2008/09 (Apr’08 to Mar’09) which still needs to be sanctioned by Kuwait’s Parliament. The revenues estimated for 2008/09 is KD12.68bn, around 52.4% up from KD8.32bn estimated in the 2007/08 budget. As expected, a majority of Kuwait’s estimated revenues for 2008/09 will be on account of oil revenues. The oil revenue is projected to comprise around 92% of the total revenues for 2008/09. The oil revenues for 2008/09 is estimated at KD11.65bn, up 56.4% from KD7.45bn estimated for 2007/08. The non-oil revenues for 2008/09 is estimated at KD1.03bn, up only 17.9% from KD0.87bn estimated for 2007/08. The rise in non-oil revenue is attributed to an increase in taxes on net income and earnings for non-oil companies and fees on goods and services.

Similarly the total expenditures for 2008/09 is estimated at KD17.80bn, up 57.5% from KD11.30bn estimated in the 2007/08 budget. The higher expenditure projected for 2008/09 is due to the cabinet decree targeting the settlement of the KD5.47bn deficit to be paid in installments to the Public Institute For Social Security (PIFSS), which is Kuwait’s social security system. As per IMF Article IV report published in April 2006, PIFSS has accumulated a substantial actuarial deficit, which amounted to around KD7bn in 2004 and this move appears to be an attempt at recapitalization. However it is important to note that this expenditure of KD5.47bn is non-recurrent in nature. On account of this significant increase in the expenditure, Kuwait’s Cabinet has estimated a deficit of KD5.12bn for 2008/09. And considering the fact that around KD1.27bn of national revenue will be contributed to Reserve Fund for Future Generations (RFFG), the overall deficit for 2008/09 is estimated at KD6.39bn.


Without considering the transfer of KD5.47bn to PIFSS (which is non-recurrent in nature), the total expenditure projected for 2008/09 is KD12.33bn, which is 9.1% higher than the previous year. Though the break-up of this expenditure is not available at this point of time, we expect to see higher allocation of capital expenditure. Increase in capital expenditure has positive impact on the overall economy with maximum impact on sectors like construction, cement and real estate. This will have a trickle-down effect on other areas of economy as well by contributing to achievement of targeted rates of growth and creation of new jobs.
It is important to note that historically Kuwait has projected the budget on a conservative basis. This is illustrated from the fact that for the fiscal year 2006/07, Kuwait achieved an actual budget surplus of KD5.20bn as against an estimated budget deficit of KD2.60bn. For the fiscal year 2007/08, Kuwait has estimated a deficit of KD2.98bn. However during the first six months of current fiscal, the country has already recorded a revenue surplus of KD5.75bn.


For the budget for the fiscal year 2008/09, sources at the Ministry of Finance have quoted that the oil revenue was estimated on the basis of a daily production of 2.2 million barrels of crude. We believe the Kuwait has again projected the budget revenues on a conservative basis. The actual average production for the first nine months of current fiscal was 2.48mb/day and we do not foresee a substantial reduction in view of higher prevailing oil prices. On the expenditure side, Kuwait has also historically spent less than budgeted figure. This is illustrated from the fact that for the fiscal year 2006/07, Kuwait’s actual expenditure was KD10.31bn as against an estimated expenditure of KD11.12bn.
However the fiscal year 2008/09 might be different than the previous years. We might see an actual deficit in 2008/09 (unlike the previous years) in case the entire amount of KD5.47bn is paid during the year to PIFSS. As per our estimates, the actual deficit for 2008/09 will be lower than the projections by Kuwait’s Cabinet.


IPO frenzy in 2007
The number of new companies which offered parts of its shares to public (IPOs) reached 41 during the year 2007. Out of these 41 companies, 38 have been listed at the time of writing of this report and three are yet to be listed. Out of these, 36 issues were listed in 2007. Out of the 41 companies which floated their shares in 2007, 28 companies were from Saudi Arabia, six from UAE and two each from Oman, Qatar and Kuwait and one from Bahrain.
Out of 41 issues, maximum number (16) were from insurance sector, followed by services (9) and Industrial (8). Alahli Takaful Co has been the biggest gainer since float, gaining 1,017.5%, followed by Al Ahlia Cooperative Insurance Co. and Malath Cooperative Insurance and Reinsurance gaining 915% and 825% respectively. It is notable that we have found a negative correlation between the price change (on listing and after one month of float) and oversubscription. It means that appreciation in the price of any offering in secondary market is heavily determined by its fundamentals rather than just frenzy.
Improved capital market conditions have been driving the IPOs in the GCC region which have resulted in investors’ growing interest in the regional equity markets. Private companies and family businesses are opening up to the prospects of a public listing. There is also tremendous rise in disposable income and savings on the back of increasing oil prices has enabled investors to lap up the offerings made by the companies. This is also attracting corporate to go for listing as can be seen from the fact that more than 50 companies are looking to tap the market in the medium term.


Market activity
GCC bourses saw 39.9bn shares being traded in the month of Jan-08 as compared to 27.5bn in the previous month. Also, the value of shares traded on the bourses increased to US$136.7bn in Jan-08 as compared to US$100.5bn reported in the previous month.
The breadth of GCC stock markets was skewed towards decliners in Jan-08 as 280 stocks registered monthly decline as compared to 249 advancers. The strong sell-off seen in the Saudi market can be seen from the fact that the Saudi bourse saw only 13 advancers as compared to 97 decliners in Jan-08.

Gulf Capital to list shares on ADSM in 2009

Abu Dhabi: Regional private equity firm Gulf Capital plans to list its shares on the Abu Dhabi Securities Market (ADSM) by the middle of 2009, its chief executive officer said on Monday.

"It's mandatory for a private joint stock company to have an average 10 per cent return on equity in the first two years of operations preceding an initial public offering," Karim Al Solh told Gulf News.

Immediate measures

"We will have to meet this ADSM requirement before we file our prospectus for listing. We should be able to meet the requirement before the middle of 2009," Al Solh said.

The source of Gulf Capital's funding is from pension funds, banks, insurance companies, family businesses and from an array of leading businessmen across the Gulf region.

Oil and gas, water, construction, telecommunications, education, financial services, logistics and healthcare are among the areas the company has identified for investment for its business growth. Abu Dhabi-based Gulf Capital's current assets include a controlling 60 per cent stake in Sharjah-based Metito, a water desalination and water treatment company. Metito has operations in 20 countries.

Gulf Capital was established in May 2006 with a capital base of Dh1.225 million from 300 shareholders in the Gulf.

By Himendra Mohan Kumar, Staff Reporter
Published: January 01, 2008, 00:37