Improved GCC equity outlook amid Covid-19 vaccines rollout: NBK
January 16 2021 08:17 PM
National Bank of Kuwait

GCC equity markets will likely continue to be influenced by their global peers, geopolitical factors, oil market stability, implementation of structural reforms and ultimately the pace of the economic recovery in the region, NBK (National Bank of Kuwait) has said in a report.
Regional equities lagged behind their global counterparts but still managed to eke out decent gains in the fourth quarter of 2020 (Q4). GCC markets were helped by higher oil prices later in the year, giving rise to a better economic and fiscal outlook.
On the geopolitical front, early signs of improvement were seen in December to end the rift with Qatar, which materialised in early January during the GCC summit in Saudi Arabia, NBK said.
The MSCI GCC index rose by 5.6% quarter-on-quarter, reducing the year-to-date decrease to -3.6%. Among the top gainers were Abu Dhabi and Dubai, as the UAE is considered a recovery play given its high exposure to tourism, trade, and services in general, benefiting as well from relatively depressed valuations during the year, NBK said.
Dubai, for example, has been one of the few destinations globally that has been open for tourism recently with hotel occupancy rates at relatively high levels.
The region’s largest market, Saudi Arabia, gained a decent 4.7% quarter-on-quarter (and was the only market in the GCC to post material gains in 2020 as a whole at 3.6%), helped by a relatively robust economic rebound in the second half the year.
Meanwhile, Kuwait’s all-share index underperformed, weighed down by factors including steep valuations relative to peers, the lagging pace of reforms, and perhaps more importantly, the end of a series of market classification upgrades, which were a major boost behind Kuwait’s exceptional two-year (2018-2019) rally (+30%), leaving investors in search of a fresh catalyst, NBK said.
“The recent rollout of vaccines is a key milestone in what has been a truly uncertain and risky year for equities, lending a much improved outlook for equities in 2021. This development lowers the chances of renewed restrictions and lockdowns (a major drag on markets this year) thereby raising the prospects of a sustained economic recovery,” NBK noted.
Record-low interest rates, continued central bank dovishness, as well as expectations of additional fiscal stimulus in the US, will likely continue to lend support to markets going into 2021. This bullish sentiment is reflected in global stocks reaching all-time highs in December, in tandem with softer demand for safe-haven assets such as gold and the dollar (USD), suggesting a risk-on investor attitude.
“The conclusion of the post-Brexit trade deal, and the end of the three year rift with Qatar should also be positive for markets. However, as previously mentioned, downside risks are present in the form of steep valuations, rising inflation expectations, the possibility of renewed US-China trade tensions, and other vaccine related risks,” NBK said.

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