KAMCO Research: GCC: A Decade since the Global Financial Crisis- October 2018

10 years from the Global Financial Crisis (GFC), the global economy has recovered, as nominal GDP is slated to grow at a CAGR of 3.2% from USD 63.72 trillion in 2008 to USD 87.51 trillion in 2018. Emerging Markets have contributed more than 64% of the increase over the period, as per our analysis of IMF data. Post the stock market crash of 2008, global stock markets erased losses and almost doubled over the next 10 years, as the market cap of global equities grew by 93% from USD 41.45 trillion in Sept-2008 to USD 80.13 trillion in Sept-2018. The nominal GDP of GCC economies is set to grow to USD 1.6 trillion in 2018 from USD 1.2 trillion in 2008, despite being confronted by the changing landscape in oil markets and oil price volatility. While in 2008, the region’s oil revenues were more driven by global demand, now in 2018 supply side economics remain the most important talking point. Initiatives to shore up fiscal balances and transform economies in the GCC are now paramount, as the fiscal breakeven oil price of major oil producers in the region (Saudi Arabia, Kuwait, UAE, Qatar) are higher by 120% on average.

GCC equity markets also improved from their lows of 2008, as total GCC market capitalization in Sept-2018 is higher by over 68% at USD 1.03 trillion compared USD 0.61 trillion in Sept-2008. However, trading activity has progressively declined, as value traded on GCC indices fell from over USD 855 Bn in 2008 to USD 304 Bn in 2017. We expect trading activity to improve from 2019 onwards from higher passive and active flows from regional mandates, especially in Saudi Arabia and Kuwait, as indices witness upgrades in market status and feature in global index compilers. IPO market activity in the region dwindled in 2017 as capital raised reached USD 3.2 Bn, down 71% from activity in 2008. On the other hand, capital raising activity through debt issuances stands more than 6.8x from 2008 to reach around USD 123 Bn in 2017, led by sovereign issuances of bonds and sukuks. This increase has been instrumental in creating secondary yield curve benchmarks and drove corporates to issue more conventional and Islamic debt instruments. Also, benchmark interest rates in the region in 2018 remain more accommodative than ten years ago, despite policy adherence to rate hikes in the US, while USD pegs followed by most GCC currencies remain intact.

Major sectors in the GCC, such as Banking and Real Estate witnessed mixed trends 10 years from 2008. GCC banks continue to maintain strong balance sheets, that have strengthened over time especially due to higher oil revenues, a significant increase in project activity and healthy economic activity. Private sector deposits have increased at an average rate of 7.3% over the past 10 years while lending has grown at 6.2%. Total banking assets have increased by 74% since the financial crisis.

Real estate markets in the region that witnessed massive oversupply concerns in 2008 in both residential and corporate office segments have seen mixed trends. Select markets in the region have recently started witnessing downward pressure on prices and rents. Prime office rents in the region in 2018 are still 40%-50% lower than peak levels of 2008, while rents of 2-BR residential apartments in the region, barring Kuwait, are down by over 40% from a decade ago.