GCC equities will generate returns of 10-15% in 2013 with large caps having the best prospects, a report from Securities & Investment Company (SICO) Bahrain has predicted.
The investment bank’s GCC Equity Markets Outlook report said that the 2012 trend of small-to-medium sized companies outperforming their larger counterparts was set to be reversed this year.
“Large cap stocks, which had a subdued performance in 2012, are expected to outperform small cap stocks in 2013,” said the report.
Fundamentals are currently looking promising and the steady improvement in corporate earnings since 2009 has not yet been reflected in many valuations, the report argued. GCC banks are particularly well positioned as their asset position remains strong, the report noted.
“The asset quality of banks is currently better than previous years, leading to lower provision charges and higher net profits. GCC banks are well-capitalised and have ample liquidity, and are thereby capable of meeting increased domestic lending needs, driven by higher government spending on infrastructure and industrial projects. The regional project pipeline remains strong at about $2 trillion, and has grown by nine per cent year-on-year, implying a backlog equivalent to twice the GCC’s total current GDP,” the report said.
However, the SICO report also noted that foreign portfolio investment in the region has not yet picked up. GCC markets, excluding Bahrain, witnessed net foreign investment of US$ 0.81 billion in 2012 compared with an outflow of US$ 1.31 billion in 2011. Lack of interest from foreign institutional investors is set to continue, while retail investors will continue to dominate in the Saudi market, the report said.