Chinese reopening, greater demand for commodities 'positive' for GCC markets: NBK

The reopening of China and its implications for commodity demand, including oil, will “potentially be very positive” for GCC markets, National Bank of Kuwait (NBK) said in a report.

Emerging markets equities in particular could perform well later in the year as its largest market, China, stands to benefit from the reopening catalyst (though the effect has been slower than anticipated) and a potentially weaker US dollar, NBK said.

GCC equity markets lagged behind their global counterparts in first quarter (Q1, 2023), sinking further into bear territory following the equally lacklustre performance of the previous quarter, weighed down by headwinds including rising borrowing costs, softer outlooks for growth and the oil market and fears of banking crisis contagion.

The MSCI GCC fell 3% q/q, with losses led by Abu Dhabi (-7.6%) and Qatar (-4.4%), while Kuwait’s All-Share lost 3.3% amid relatively thin liquidity.

Losses in the MSCI GCC were curbed by a small gain in heavy weight Saudi Arabia (+0.4%), while Dubai led the pack, up 2.1%.

Looking ahead, NBK noted GCC equities will continue to be influenced by international market developments, including oil, economic growth, and Fed policy.

Generally improved fiscal positions thanks to large hydrocarbon windfalls in 2022, and still favourable though moderating growth outlooks in 2023 are supportive of market sentiment.

A buoyant IPO market should help maintain investor interest after a record 48 listings and $23bn in capitalisation in 2022, 34 from Saudi Arabia linked to its private sector reform and investment plans.

Lastly, oil market volatility and rising borrowing costs are additional regional headwinds, though risks from the former appear modest given OPEC’s preemptive production policies, sometimes moving ahead of the market, NBK noted.