Tag: 12th One on One Conference

  • Decline in oil prices expected to affect emerging economies

    Decline in oil prices expected to affect emerging economies

    The effect of the decline in oil prices has extended to emerging economies, including non-oil countries, said EFG-Hermes Head of Research Ahmed Shams, during EFG Hermes 12th One on One Conference on Monday.

    Meanwhile, the expected budget deficit in the Gulf states’ will speed up the introduction of economic reform programmes, Shams conjectured.

    Shams noted that the focus of the past year’s meeting was on GCC member states’ concerns over the economic effect of oil prices falling to less than $50 a barrel. However, with the continued decline to $35 a barrel, losses have hit markets internationally.

    However, Shams noted that the introduction of economic reform programmes in the Gulf and the diversification of sources of income will have a positive impact in the long-term.

  • Sluggish recovery expected in regional market

    Sluggish recovery expected in regional market

    The recovery of the region’s markets will be slower this year and in the year following, said EFG Hermes’ Director of MENA Strategy Simon Kitchen during EFG Hermes 12th One on One Conference on Monday.

    Kitchen further projected that stock prices will stand at the same levels after the collapse of Lehman Brothers and the global financial crisis.

    Kitchen noted that there is a liquidity death in the region’s markets, leading to fluctuations in the stock markets. He added that companies with strong management, healthy financial listings, and efficient access to capital are best-positioned to profit from the current fluctuations.

    Companies that are largely exposed to oil prices, government spending, and sizeable loans will be majorly affected by these fluctuations, added Kitchen. A strategist at EFG Hermes emphasised the importance of searching for alternative sources of energy and reducing support on the region’s oil reserves.

    He said stock markets in the Gulf region have been adversely affected by the decline in oil prices, adding that Saudi Arabia and the UAE are currently in the process of selling some of their foreign financial assets to finance the budget deficit, and to maintain government spending in light of the decline in oil prices.

    Kitchen said: “Some governments in the region are selling oil at low prices in an attempt to maintain their market shares, such as Saudi Arabia, Iran, and Iraq, with some reducing prices to as low as $20 a barrel.”

    He pointed out that the effect on Saudi Arabia is greater than other Gulf countries, given the decrease in oil revenues, which negatively reflected on the government’s spending plans, which have been continuously expanding since 2014. He further mentioned that the building and construction projects in the Saudi Kingdom witnessed a reduction in expenses, in addition to the delay in the execution of contracts and payment of dues, which contributed to reducing companies’ returns.

    He thereby projected that the recovery of the region’s markets will be more sluggish during this year and the next.

    Kitchen called on Gulf states to take steps towards reducing subsidies, to shift toward renewable energy sources, to apply the value-added tax, and to increase tax rates on alcoholic beverages and cigarettes, noting that Egypt has yet to introduce the value-added tax.

    He further highlighted the importance of these taxes to produce revenues for spending on infrastructure projects, in spite of the burden they may represent to citizens.

    He explained that Gulf countries can resort to sovereign funds to provide alternate returns for the declining oil revenues, calling on the governments to cut down on the dependence of their main revenues on oil by diversifying their sources of income.

    He commended the performance of the banking sector in the UAE, noting that the real estate sector performed better in the past year. He further noted that the UAE market is not as susceptible to global market fluctuations.

    He projected that oil prices may recover by the beginning of next year. However, he noted that they are not expected to hit the $60-$70 mark per barrel for a long time.

    The Middle East’s shares are currently at the same level they were in the aftermath of the Lehman Brothers’ collapse and the ensuing global financial crisis, measured by their shares’ market prices to their book values, he noted.

    EFG Hermes further pointed to the ratio between market prices and book value as the basic standard that should be used in assessment, because estimating profits has become difficult in light of current circumstances.

  • Capital withdrawal slows in January and February

    Capital withdrawal slows in January and February

    Capital withdrawals in the region have abated during last January and February, Mohamed Ebeid, the co-head of the securities brokerage at EFG Hermes, said during EFG Hermes 12th One on One Conference on Monday.

    He further noted that investors are currently looking for hubs to maximise the value of investments, especially in GCC country markets.

    Ebeid added that the crucial decisions and bold policies adopted by governments and businesses will pragmatically support performance indicators.

    Ebeid said the performance of Arab markets reflects the ongoing developments in global markets and oil markets. For example, the main Saudi stock market index declined to 32% since the beginning of 2016, while Egypt’s index declined to 35% and the UAE’s index went down to between 12% and 13%, compounded by the weak trading and general decline in liquidity.

    He added that Egypt created a mechanism last year to allow investors to recover money in the stock market, and also repaid the previous arrears. Egypt was moderately successful in reducing investors’ fears.