Sustained Gulf equity boom set to cruise into 2022

The Gulf equity market bandwagon is on track to cruise into 2022.The main catalysts are the 2022 FIFA World Cup in Qatar and the new listings.The region’s stocks are on track for their best annual performance since 2007, with a return of 36% including dividends, according to a Bloomberg report.That compares with 20% for the MSCI World Index, which tracks developed world markets, and a 1.9% loss for the MSCI Emerging Market index.And investors expect further gains in 2022, driven by the soccer World Cup and new listings.Qatar is spending billions of dollars on infrastructure and preparations for the first ever Middle East FIFA World Cup to be held between November 21 and December 18 next year.Gulf exchanges are likely to have another busy year of initial public offerings (IPOs) in 2022, possibly surpassing this year’s bumper crop, a Bank of America executive told Reuters.After a year that featured three major IPOs on both Abu Dhabi’s ADX and Saudi Arabia’s Tadawul markets, Dubai has announced plans to list as many as 10 state-owned companies.“We expect ADX and Tadawul to be very busy. The major difference in 2022 is that the Dubai financial market will be busy too,” said Christian Cabanne, Bank of America’s head of equity capital markets for Central and Eastern Europe, Middle East and Africa.With the outlook for oil prices uncertain after this year’s near 50% gain for Brent crude and with the risks surrounding the Covid pandemic, those initiatives could pick up some of the slack, supporting stocks in the six-member Gulf Cooperation Council, according to Mohamed Ali Yasin, chief strategy officer at Al Dhabi Capital Ltd.He expects Qatar and Dubai-listed stocks to lead gains in 2022, followed by Saudi Arabia and Abu Dhabi.Hasnain Malik, the Dubai-based head of research at Tellimer, sees other potential positive catalysts including the prospect of a renegotiated Iran nuclear deal and a wind-down of the war in Yemen.There are downsides too.A Covid resurgence, largely led by the Omicron variant and its potential impact on global travel could weigh on sentiments.Also, most GCC markets are expensive relative to other emerging-market oil exporters.The MSCI GCC Countries Combined Index is trading at about 16 times expected earnings in the next 12 months, a premium of 30% to emerging-market stocks. This compares with an average premium of 13% over the past 10 years, says a Bloomberg report.The volatility in global oil markets is another dampener.But as Gulf governments carry on with their efforts to diversify their economies, earnings growth will remain strong, underpinning equity gains into 2022, according to Divye Arora, a Dubai-based portfolio manager at Daman Investments.Positioning looks favourable also.Global emerging-market active funds continue to be largely underweight on Middle Eastern equities, according to Morgan Stanley, which in November put Saudi stocks back on its buy list.The markets’ small weighting in the MSCI Emerging Markets Index overall is a key factor holding back investors, according to Goldman Sachs Group Inc.Going forward, Gulf “governments are likely to enjoy elevated incomes in 2022,” according to Akber Khan, senior director of asset management at Al Rayan Investment in Doha who oversees $1.3bn in assets. “The outlook for Gulf equities is unequivocally bright.”