Bullish H1 2013 forecast for Mena equities
, December 28, 2012
The first half of 2013 will be bullish for Mena equities and Saudi Arabia could be the value story next year with a strong equity market performance, according to a report.
Due to a combination of one-off factors, the value discount for Saudi equities is at historically high levels, and that gap could be closed in 2013, said the VTB Capital report.
It sees Dubai real estate continuing on the upward trajectory of 2012. Petrochemicals, Financials, Telecoms, Consumer – no matter which sector is looked at, the absolute and relative valuations appear to be at bargain levels in selected countries, it said.
"We do not foresee major international participation in the Egyptian equity markets until 2H13; however, we expect fast money accounts to lead a market rally in 1Q13, with subdued volumes, hence our Egypt overweight," the report said.
Outperformance drivers: Stable crude prices, increased government infrastructure spending, asset value recovery in Dubai real estate, petrochemicals’ value discount, high dividend yields and robust balance sheets, as well as discretionary retail spend are to be the key drivers of equity outperformance, the report said.
Overweight Saudi Arabia and petrochemicals: For investors with access to Saudi markets it advises an overweight stance on petrochemicals and a relative underweight on financials, consumers and on telecoms. "We like Saudi petrochemicals, selective Saudi/UAE/Qatari banks, Saudi/Egyptian/Qatari telecoms, Saudi discretionary retail (non F&B) and Dubai real estate exposure via CBQ," it said.
For investors without Saudi market access, "we would prefer industrials and telecoms over banks and consumer stocks. We would avoid playing real estate and construction names directly because we would rather avoid the corporate governance issues associated with the sector," VTB Capital said.
Ubiquitous contracts and increasing backlog lure investors, but transfer pricing between related entities, cost inflation and receivable impairments are amply used to deflate listed public entities’ profitability and in some cases impair the balance sheet itself. We prefer debt instruments over equity to gain exposure to the real estate sector, it said.
The report's top five stocks are: Telecom Egypt on account of earnings visibility and dividend yields; Advanced Petrochemical Company, as a pure play on polypropylene exposure (our favoured major olefin product group) and attractive valuations with dividend upside potential; National Industrialization
Company, on account of deep value (highest potential upside in our covered petrochemical universe); Commercial Bank of Qatar for its attractive dividend yield, Qatar deposit growth, attractive valuations and
leveraged exposure to Dubai real estate credit via the UAB (United Arab Bank) subsidiary; and Alinma Bank due to its attractive valuation, consumer exposure optionality and attractive growth optionalities in terms of branch network, deposits and NIMs growth. - TradeArabia News Service
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