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Interview with Sameer Al Ansari
Sameer Al Ansari is the CEO of Dubai-based investment bank Shuaa Capital talks to Atique Naqvi about the region’s stock markets and how soaring oil prices are likely to boost growth.
May 2, 2011 12:13 by Tanya Goudsouzian
How will the rising oil prices benefit the region’s energy-rich nations?
With the rise in oil prices, we can expect an increase in domestic investment due to a surplus in available regional governments’ funds. This would eventually flow through the economy and bring about growth via higher wages, increased spending and positively impact spending on regional infrastructure.
Saudi Arabia’s oil sector, which still accounts for about half of the country’s economy, grew by an estimated 2.1 percent, in line with Shuaa’s forecast, and the momentum gathered by the global economic recovery. This growth facilitated government spending on infrastructure projects and underpinned GDP growth last year.
The impact of government spending is reflected in the official GDP estimates for last year, which show that the government sector expanded by almost six percent year-on-year in 2010. We expect growth to accelerate to 4.4 percent this year, underpinned by government spending, recovering private sector activity, and modest expansion (two percent year-on-year) in the oil sector.
What are the areas of investment that regional and foreign investors should look forward to in 2011?
We are optimistic about Qatar, Saudi Arabia and the UAE for a variety of reasons. We look at the UAE for value, Qatar for growth, and Saudi Arabia for selective stock/sector picks. The UAE markets’ low valuations and recent restructuring plans will contribute to easing Dubai’s structural problems and present good investment opportunities. We expect high corporate earnings growth for 2011 – growth rates are expected to reach 29 percent for the Abu Dhabi Securities Exchange and around 19 percent for the Dubai Financial Market. It is very likely that Qatar will witness consistent growth with its continued massive infrastructure spending programs, which will benefit all local sectors. We expect earnings growth to touch 14 percent in the Doha stock market.
In the case of Saudi Arabia, we believe investors should look at selective stock/sectors. Petrochemicals will remain strong on the back of high global oil prices, followed by telecommunications, which we expect to retain its resilience in 2011. We also expect the consumer and retail sectors to fare well due to the high consumer purchasing power of one of the largest populations in the region.
What is in store for the GCC banking and financial sector in 2011?
We believe that banks in Qatar will outperform the GCC banking sector with a 17 percent growth in deposits in 2011, as opposed to 10 percent in Saudi Arabia, and eight percent in the UAE.
Qatar’s banking statistics continue to impress, driven by a powerful public sector dynamics. Liquidity and massive infrastructure spending will contribute to the positive performance of Qatari banks, especially after the 2022 World Cup announcement, which revived confidence and posed growth opportunities. Saudi banks follow Qatar with growing customer deposits and high liquidity levels.
Our forecast for the UAE banking sector is currently neutral. Until we see a decline in provisioning, we do not believe the sector will outperform any others due to the coupled effect of high non-performing loans and poor asset quality. We believe a complete clean-up of the banks’ books is what is needed to restore investor confidence.
Another important factor that would positively impact the UAE banking sector and, of course, stimulate the real estate market, is the availability of mortgage lending.
Working hand-in-hand, long-term government deposits will go a long way in tackling the risk aversion and high retail interest rates that we are currently seeing in the banking sector.
With regards to the regional financial sector, we think a number of factors will contribute to its growth. Efforts made by Saudi Arabia to open up to foreigners are certainly an important step in the right direction to attract foreign investment. Both the UAE and Qatari markets are also working towards gaining entry into the MSCI EM, for which we believe inclusion in 2011 is not too far fetched and, if achieved, would be extremely beneficial to market conditions.
This interview was first published in TRENDS