Markets Outlook
Markets Outlook Middle East & Africa markets bulletin: March 2016
About Invest AD
Inside: Morocco provides spark in African gloom
Invest AD is a unique financial services company offering institutional investors access to high-growth opportunities in frontier and emerging markets, specialising in Africa and the Middle East. Owned by the Abu Dhabi government, the company benefits from an extensive international network, established over three decades and spanning governments, business leaders, and regulators. With a history as a long-term investor, the company is highly respected in emerging and frontier markets, allowing us to offer exceptional investment opportunities to our global partners. We implement international best practice in governance throughout all our operations, while offering flexibility in investment – whether through funds, tailor-made products, or long-term partnerships. Contact For investor inquiries contact 800-Invest AD or 800-4683 7823 For international callers: +971 2 692 6101 For other enquiries call: +971 2 665 8100 Email: [email protected]
Focus During a grim start of the year for Africa’s major economies and stock markets, Morocco has stood out as the most positive investment story due to economic reform, an improving fiscal position, and signs of industrial progress. More information: Page 2
This material has been prepared by the Abu Dhabi Investment Company, which operates under the trading name of Invest AD, located at PO Box 46309, Abu Dhabi UAE and by Invest AD Asset Management PJSC, a UAE-based investment company licensed and regulated by the Central Bank of the United Arab Emirates, and the UAE Securities and Commodities Authority , located at PO Box 46309, Abu Dhabi UAE. This material is provided for information purposes only to Professional and Institutional Investors. The provision of this material and/or references to securities, sectors or markets within this material does not constitute investment advice, or a recommendation or an offer to buy or sell any security, or an offer of investment services. The analysis and opinions expressed in this material represent the subjective views of the author as of the date indicated, may no longer be current, and may change as a result of market developments. There can be no assurances that developments will transpire as forecasted in this material. Invest AD and its subsidiaries or affiliates may (1) engage in securities transactions in a manner inconsistent with this material and (2) with respect to securities referenced in this material, sell to or buy from customers on a principal basis. Investors should consider carefully the investment objectives, risks and expenses of any investment before investing. This material may not be distributed, published or reproduced, in whole or part, without the prior consent of Invest AD and Invest AD Asset Management PJSC
Equities GCC markets have been dominated by Q4 results announcements, which guide towards a challenging 2016 in which investors should continue to focus on firms that are relatively more resilient in a difficult macro environment. In Africa, sentiment around the Nigerian and Egyptian markets remains relatively bearish with few signs of a near-term turnaround. Moody’s maintains its stable outlook of Kenya, where tea exports recently set a record, and Tunisia is embarking on a Eurodenominated bond issue. More information: Page 3
Fixed income Credit markets in the Middle East and Africa had a strong week as oil prices continued to rise. Investors focus on the re-opening of the tap of the Bahrain five-year and ten-year issuances, following the tap and cancel of the issue the previous week due to the sudden rating downgrade of Bahrain by S&P. More information: Page 4
1
Focus Morocco provides spark in African gloom During a grim start of the year for Africa’s major economies and stock markets, Morocco has stood out as the most positive investment story due to economic reform, an improving fiscal position, and signs of industrial progress. The Nigerian and Egyptian markets are among the worst performing in the world in recent months, due to fears over deteriorating current accounts and waning corporate activity, but Morocco has emerged as one of the few bright spots on the continent. Although sometimes overlooked by investors because of low market liquidity, Morocco has carefully navigated the so-called Arab Spring, with far-reaching structural changes in government undertaken by the King, while economic growth is on an upward trend. The economy was one of the region’s best performers in 2015 – with GDP growth averaging 4.3 percent in the first three quarters of the year, up from 2.4 percent growth in 2014. The country was also the first in the region to completely abandon fuel subsidies, and has been actively pursuing a policy of outreach to the rest of Africa in a bid to build closer economic and political ties with its southern neighbours. Over the past few years, some of Morocco’s biggest and most reputable blue-chip companies have expanded across the region, with Attijariwafa Bank now present in six African countries, and Maroc Telecom owning operations in nine countries. On the macro-economic front, tighter fiscal policy, coupled with lower commodity prices, has helped to rein in the country’s current account deficit. The shortfall has narrowed from 9.3 percent of GDP in 2012 to less than 2 percent last year. This means Morocco is much less dependent on foreign capital inflows and, as a result, the economy is less vulnerable to strains in the balance of payments.
The government has also taken positive steps to improve the business climate. Morocco has jumped from a rank of 130 in the World Bank’s Doing Business report in 2010 to 71 in 2015, the second largest improvement in the world over this period. And while still largely dependent on the agriculture sector – it accounts for 20 percent of GDP – the country has made large strides to develop a manufacturing sector. Government efforts to attract investment into the automotive industry stand out as a clear success. In 2012, Renault opened a factory in the north of the country and more recently, Peugeot Citroen has inked a deal that will see manufacturing operations begin in 2019. The automotive sector became the county’s largest exporter in 2014, with a turnover of US$ 4.4 billion, overtaking phosphates. Morocco had already dethroned Egypt as the leading automaker in North Africa in 2012, and is now second in Africa, only behind South Africa. Investment into the manufacturing sector should have many positive spillover effects. Supply chains are being built up to provide intermediate parts and services. We are also seeing the introduction of better management techniques through the sector, investment in training, and infrastructure improvements that could raise productivity in other sectors. While the Moroccan stock market is the fourth largest in Africa in terms of market capitalization, there are some shortcomings that have left foreign investors frustrated. Liquidity is low, with trading volumes averaging US$ 5 million a day, and this can be concentrated in a handful of stocks. In addition, the fact that companies are required to report on only a semi-annual basis means that corporate information flow is relatively limited.
This is unlikely to change anytime soon, as the exchange believes more regular reporting would discourage new listings. However, having said that, there has been a marked improvement in company transparency over the past few years, and investor relations professionals tend to now be proficient in English as well as French, making them more accessible to a wider group of investors. Despite these challenges, investors should consider a market that is underpinned by an increasingly solid and diversified economy. The largest companies, such as Attijariwafa Bank and Maroc Teleocm are mainstays for investors in the country, but over the long-term, value investors should look closely at the less liquid but very interesting stocks available. Cosumar, for example, which only averages about US$ 219,000 in trading activity, has a monopoly in the Moroccan sugar industry and is the third largest sugar producer in Africa. In its latest financials, the company expanded its margins on the back of better cost management coupled with strong revenues on higher exports and better capacity utilization. The stock is up 16 percent in U.S. dollar terms this year and gives a dividend yield of 5.3 percent. At a time when many African markets are shrouded in gloom, hidden gems in the Moroccan market are starting to shine brightly. Sherif Salem is a portfolio manger at Invest AD, and manges Invest AD’s SICAV Emerging Africa Fund.
2
Equities GCC We expect investor sentiment in GCC markets to remain cautious with a negative bias for the first half of the year, barring a significant change in oil prices. Global market trends and ongoing regional geopolitical developments will also continue to have an impact. While the informal agreement between Saudi Arabia and Russia to freeze oil production is unlikely to change oil market fundamentals given continued excess supply, it is an interesting development that signals the renewal of dialogue between key OPEC and non-OPEC producers. The past month was dominated by Q4 results announcements, and while a few companies beat consensus estimates, a number reported weaker earnings compared with the previous year and are guiding towards a challenging 2016. We feel margins, returns on equity and demand growth for products and services will all be under pressure for much of the year. Investors should continue to focus on research and invest in firms with strong management and healthy cash flows that are relatively more resilient in a difficult macro environment. Any stability in oil prices or global markets, or a hiatus in the onslaught of negative news, could encourage investors to increase exposure to stocks and provide a trigger to local markets, given current attractive valuations. Companies with healthy cash flows and attractive dividend yields should continue to attract investor interest.
Africa Sentiment around the Nigerian and Egyptian markets remains relatively bearish with few signs of a near-term turnaround. Values traded on the Nigerian stock market have hit multi-year lows as foreign investors remain largely on the sidelines, and frustration from investors and corporates alike continues with the US dollar shortage worsening. While Nigeria’s crude output has increased, prices have remained under pressure. In Egypt, the central bank has ruled out allowing the pound to weaken until reserves are higher, and will focus instead on economic development and stabilising prices. Comments from the governor that the central bank would encourage capital flows and that companies would likely be able to access foreign exchange from next year may lend support to some listed firms. In Kenya, while the macro picture is encouraging, with Moody’s maintaining its stable outlook and tea exports recently setting a record, investors are not rushing to enter the market as most have been overweight on the country for some time. Moving forward, corporate earnings will be in focus. Tunisia, which is embarking on a Euro-denominated bond issue and has drafted a new investment code that includes a number of measures to encourage investment by foreign companies, may also draw more investor attention.
Market data as of February 26, 2016 Country/Region S&P GCC S&P Frontier BMI S&P Pan Arab MSCI Emerging Markets MSCI World Total Return MSCI EFM Africa Ex S.A.
Closing price
MTD
YTD
3M
1Y
3Y
138.61
4.37%
-8.03%
-11.32%
-26.83%
-0.56%
86.19 130.96 740.02 4,223.63 440.04
2.95% 3.98% -0.22% -0.29% 2.53%
-4.11% -7.76% -6.70% -6.25% -8.37%
-9.02% -10.18% -10.02% -8.22% -5.61%
-18.27% -25.79% -23.45% -10.65% -20.76%
-9.89% -0.89% -22.80% 18.99% -21.92%
125.43 1,593.46 1,395.07 767.33 1,631.89 199.13
11.22% 1.69% 4.68% 7.80% 7.87% 2.26%
-2.12% -13.42% -5.98% -3.04% -3.10% -0.80%
-2.03% -17.32% -9.88% -3.21% -7.52% -9.19%
-18.23% -33.93% -24.79% -22.19% -15.03% -24.27%
53.15% -5.56% -21.60% 12.69% -0.14% -51.61%
161.50 356,750.84 240.54 0.44 26.72 83.41 567.38 18.20 25.13 2.37 735.62 75.98 102.27
3.61% 1.09% -0.55% 0.21% 2.84% -5.38% 1.49% 4.63% 1.34% 1.19% 2.27% -2.50% -1.26%
-14.17% 2.73% -5.40% -3.75% 3.33% -11.23% -5.24% -0.19% -0.30% -15.48% 9.45% -6.22% -7.77%
-3.82% -3.04% -0.05% -3.45% 2.65% -14.89% 1.83% -0.68% -1.10% -13.50% 11.61% -16.31% -15.56%
-34.85% -24.26% -5.43% -2.38% -10.58% -11.35% -19.94% -23.07% -13.36% -16.09% -7.91% -34.52% -45.20%
-4.57% -36.84% -23.75% -4.38% -9.10% -3.60% -40.95% 34.01% -7.13% -43.92% -6.55% -25.71% -34.66%
Total return in local currency (MSCI) MSCI UAE Saudi Arabia MSCI Kuwait MSCI Qatar MSCI Oman MSCI Bahrain Total return in USD (MSCI) MSCI Egypt MSCI Turkey MSCI Jordan MSCI Lebanon MSCI Morocco MSCI Botswana MSCI Ghana MSCI Kenya MSCI Mauritius MSCI Nigeria MSCI Tunisia MSCI South Africa S&P Zambia Source: Bloomberg
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3
Fixed income Credit markets in the Middle East and Africa have performed well as oil prices continued to rise and a lack of any further negative news in global markets helped to push prices up in the larger EM space. The focus at the end of February was the re-opening of the tap of the Bahrain five-year and ten-year issuances, following the tap and cancel of the issue the previous week due to the sudden rating downgrade of Bahrain by S&P. With its new sub-investment grade rating, Bahrain came to the market with an additional new issuance premium of 25 bps each. The five-year tap was announced at a yield of 5.95 percent (against the 5.70 percent yield of the cancelled tap) and the ten-year tap at a yield of 7.65 percent (against the earlier 7.40 percent). Bahrain’s secondary sovereign market prices adjusted in line with the new yield levels and traded above the re-offer levels before and after the tap was concluded, indicating that even with a highyield credit rating, demand for Bahrain bonds remains high at such attractive yield levels. The fact that the size of the tap was reduced from the US$ 750 million to US$ 600 million in the
recent issuance helped to keep demand strong for the bonds. A lack of any other big new issuances, coupled with a positive backdrop, helped to create a good squeeze in the high-grade segment of regional credits with names such as Taqa, Qtel and Seco rallying between 25-30 bps in spread terms towards the end of the month. The high-yield segment of the market also witnessed strong buying at the end of February, especially at the long-end where Asian life insurance buying helped to move prices up. There has been good demand for Dubai corporate names as well, with financial names from the region lagging the rally. Investors seem to believe that in a stable market, financials will be the first to come to the new issuance market. In Africa, activity levels have picked up in both the North Africa and Sub-Saharan Africa markets. Bonds in Morocco and Tunisia witnessed strong buying as real money accounts placed cash in those markets and offer-side inventory fell as prices moved up. The SSA (supranational, sub-sovereign and agency) space has recently rallied across the board, mainly on short covering by fast money
accounts and spreads compressed broadly by 30 bps. The main outperformers at the end of the month were high-beta names such as Ghana and Zambia, which rallied by more than three points each. However, towards the close of the week Zambia experienced some selling as several accounts looked to book profits. The main theme in SSA seems to be the covering of underweight positions in the portfolio by real money accounts on the back of stable oil prices and attractive yield levels. The new issuance pipeline is not expected to be active as markets remain volatile and issuers are expected to wait for better yield levels.
Sovereign CDS spreads
GCC CDS spreads
1000
Sov CDS
900 800
Abu Dhabi Saudi
700 600 500
Dubai Bahrain
400 300
Qatar Turkey
200 100 0 Jan-09Jul-09Jan-10Jul-10Jan-11Jul-11Jan-12Jul-12Jan-13Jul-13Jan-14Jul-14Jan-15Jul-15Jan-16Jul-16 Abu Dhabi
Dubai
Qatar
Saudi
Bahrain
Turkey
Level
Wk (bps)
YTD (bps)
Abu Dhabi
120
-1
27
Dubai Qatar Saudi
233 120 175
-13 -5 -4
-1 27 19
FI & Corp CDS NBAD ADCB Emirates Bank Samba
134 170 298 233
-7 11 -9 10
24 42 99 41
212
2
216
-27
-97 32
TAQA DP World
Source: Bloomberg
Source: Bloomberg
Market data as of February 29, 2016 Financials – senior
Maturity
Cpn
Bid
Ask
Bid sprd
Ask sprd
S&P
CCY
Type
ADCB
16-Sep-19
2.75%
99.38
100.13
200
178
A
USD
C
ADCB
6-Mar-23
4.50%
100.75
101.50
USD
C
29-Oct-49
6.38%
103.13
103.88
N.A.
USD
S
8-Oct-18
3.27%
101.38
102.13
N.A.
USD
S
26-Mar-18
2.50%
98.75
99.75
BBB-
USD
C
COMQAT
24-Jun-19
2.88%
99.50
100.50
C
NOORBK
28-Apr-20
2.79%
97.00
97.75
First Gulf Bk
14-Jan-19
3.25%
100.88
101.88
KIPCO
5-Feb-19
4.80%
102.38
103.38
NBAD
13-Aug-19
3.00%
101.50
102.25
7-Oct-19
3.13%
99.50
100.50
QNB
14-Feb-18
2.13%
100.00
100.75
CBDUH
17-Nov-20
4.00%
101.50
102.25
BATELCO
1-May-20
4.25%
94.00
95.50
DEWA
21-Oct-20
7.38%
117.75
Dolphin Energy
15-Dec-21
5.50%
110.50
118.25 111.25
DP World
2-Jul-17
6.25%
104.75
105.13
297 394 158 183 181 237 170 270 139 204 93 242 447 208 218 129
A-
ADIB
DP World
2-Jul-37
6.85%
95.50
96.50
309 424 187 234 213 257 206 306 162 233 132 259 490 218 232 157 546
ALHILA Bank Muscat
Natl Bk of Oman
Source: Bloomberg
536
A-
USD
N.A.
USD
S
N.A.
USD
C
BBB-
USD
C
AA-
USD
C
N.A.
USD
C
A+
USD
S
N.A.
USD
C
BB
USD
C
N.A.
USD
C
N.A.
USD
C
NR
USD
S
NR
USD
C
4
About Invest AD
Inside: Morocco provides spark in African gloom
Invest AD is a unique financial services company offering institutional investors access to high-growth opportunities in frontier and emerging markets, specialising in Africa and the Middle East. Owned by the Abu Dhabi government, the company benefits from an extensive international network, established over three decades and spanning governments, business leaders, and regulators. With a history as a long-term investor, the company is highly respected in emerging and frontier markets, allowing us to offer exceptional investment opportunities to our global partners. We implement international best practice in governance throughout all our operations, while offering flexibility in investment – whether through funds, tailor-made products, or long-term partnerships. Contact For investor inquiries contact 800-Invest AD or 800-4683 7823 For international callers: +971 2 692 6101 For other enquiries call: +971 2 665 8100 Email: [email protected]
Focus During a grim start of the year for Africa’s major economies and stock markets, Morocco has stood out as the most positive investment story due to economic reform, an improving fiscal position, and signs of industrial progress. More information: Page 2
This material has been prepared by the Abu Dhabi Investment Company, which operates under the trading name of Invest AD, located at PO Box 46309, Abu Dhabi UAE and by Invest AD Asset Management PJSC, a UAE-based investment company licensed and regulated by the Central Bank of the United Arab Emirates, and the UAE Securities and Commodities Authority , located at PO Box 46309, Abu Dhabi UAE. This material is provided for information purposes only to Professional and Institutional Investors. The provision of this material and/or references to securities, sectors or markets within this material does not constitute investment advice, or a recommendation or an offer to buy or sell any security, or an offer of investment services. The analysis and opinions expressed in this material represent the subjective views of the author as of the date indicated, may no longer be current, and may change as a result of market developments. There can be no assurances that developments will transpire as forecasted in this material. Invest AD and its subsidiaries or affiliates may (1) engage in securities transactions in a manner inconsistent with this material and (2) with respect to securities referenced in this material, sell to or buy from customers on a principal basis. Investors should consider carefully the investment objectives, risks and expenses of any investment before investing. This material may not be distributed, published or reproduced, in whole or part, without the prior consent of Invest AD and Invest AD Asset Management PJSC
Equities GCC markets have been dominated by Q4 results announcements, which guide towards a challenging 2016 in which investors should continue to focus on firms that are relatively more resilient in a difficult macro environment. In Africa, sentiment around the Nigerian and Egyptian markets remains relatively bearish with few signs of a near-term turnaround. Moody’s maintains its stable outlook of Kenya, where tea exports recently set a record, and Tunisia is embarking on a Eurodenominated bond issue. More information: Page 3
Fixed income Credit markets in the Middle East and Africa had a strong week as oil prices continued to rise. Investors focus on the re-opening of the tap of the Bahrain five-year and ten-year issuances, following the tap and cancel of the issue the previous week due to the sudden rating downgrade of Bahrain by S&P. More information: Page 4
1
Focus Morocco provides spark in African gloom During a grim start of the year for Africa’s major economies and stock markets, Morocco has stood out as the most positive investment story due to economic reform, an improving fiscal position, and signs of industrial progress. The Nigerian and Egyptian markets are among the worst performing in the world in recent months, due to fears over deteriorating current accounts and waning corporate activity, but Morocco has emerged as one of the few bright spots on the continent. Although sometimes overlooked by investors because of low market liquidity, Morocco has carefully navigated the so-called Arab Spring, with far-reaching structural changes in government undertaken by the King, while economic growth is on an upward trend. The economy was one of the region’s best performers in 2015 – with GDP growth averaging 4.3 percent in the first three quarters of the year, up from 2.4 percent growth in 2014. The country was also the first in the region to completely abandon fuel subsidies, and has been actively pursuing a policy of outreach to the rest of Africa in a bid to build closer economic and political ties with its southern neighbours. Over the past few years, some of Morocco’s biggest and most reputable blue-chip companies have expanded across the region, with Attijariwafa Bank now present in six African countries, and Maroc Telecom owning operations in nine countries. On the macro-economic front, tighter fiscal policy, coupled with lower commodity prices, has helped to rein in the country’s current account deficit. The shortfall has narrowed from 9.3 percent of GDP in 2012 to less than 2 percent last year. This means Morocco is much less dependent on foreign capital inflows and, as a result, the economy is less vulnerable to strains in the balance of payments.
The government has also taken positive steps to improve the business climate. Morocco has jumped from a rank of 130 in the World Bank’s Doing Business report in 2010 to 71 in 2015, the second largest improvement in the world over this period. And while still largely dependent on the agriculture sector – it accounts for 20 percent of GDP – the country has made large strides to develop a manufacturing sector. Government efforts to attract investment into the automotive industry stand out as a clear success. In 2012, Renault opened a factory in the north of the country and more recently, Peugeot Citroen has inked a deal that will see manufacturing operations begin in 2019. The automotive sector became the county’s largest exporter in 2014, with a turnover of US$ 4.4 billion, overtaking phosphates. Morocco had already dethroned Egypt as the leading automaker in North Africa in 2012, and is now second in Africa, only behind South Africa. Investment into the manufacturing sector should have many positive spillover effects. Supply chains are being built up to provide intermediate parts and services. We are also seeing the introduction of better management techniques through the sector, investment in training, and infrastructure improvements that could raise productivity in other sectors. While the Moroccan stock market is the fourth largest in Africa in terms of market capitalization, there are some shortcomings that have left foreign investors frustrated. Liquidity is low, with trading volumes averaging US$ 5 million a day, and this can be concentrated in a handful of stocks. In addition, the fact that companies are required to report on only a semi-annual basis means that corporate information flow is relatively limited.
This is unlikely to change anytime soon, as the exchange believes more regular reporting would discourage new listings. However, having said that, there has been a marked improvement in company transparency over the past few years, and investor relations professionals tend to now be proficient in English as well as French, making them more accessible to a wider group of investors. Despite these challenges, investors should consider a market that is underpinned by an increasingly solid and diversified economy. The largest companies, such as Attijariwafa Bank and Maroc Teleocm are mainstays for investors in the country, but over the long-term, value investors should look closely at the less liquid but very interesting stocks available. Cosumar, for example, which only averages about US$ 219,000 in trading activity, has a monopoly in the Moroccan sugar industry and is the third largest sugar producer in Africa. In its latest financials, the company expanded its margins on the back of better cost management coupled with strong revenues on higher exports and better capacity utilization. The stock is up 16 percent in U.S. dollar terms this year and gives a dividend yield of 5.3 percent. At a time when many African markets are shrouded in gloom, hidden gems in the Moroccan market are starting to shine brightly. Sherif Salem is a portfolio manger at Invest AD, and manges Invest AD’s SICAV Emerging Africa Fund.
2
Equities GCC We expect investor sentiment in GCC markets to remain cautious with a negative bias for the first half of the year, barring a significant change in oil prices. Global market trends and ongoing regional geopolitical developments will also continue to have an impact. While the informal agreement between Saudi Arabia and Russia to freeze oil production is unlikely to change oil market fundamentals given continued excess supply, it is an interesting development that signals the renewal of dialogue between key OPEC and non-OPEC producers. The past month was dominated by Q4 results announcements, and while a few companies beat consensus estimates, a number reported weaker earnings compared with the previous year and are guiding towards a challenging 2016. We feel margins, returns on equity and demand growth for products and services will all be under pressure for much of the year. Investors should continue to focus on research and invest in firms with strong management and healthy cash flows that are relatively more resilient in a difficult macro environment. Any stability in oil prices or global markets, or a hiatus in the onslaught of negative news, could encourage investors to increase exposure to stocks and provide a trigger to local markets, given current attractive valuations. Companies with healthy cash flows and attractive dividend yields should continue to attract investor interest.
Africa Sentiment around the Nigerian and Egyptian markets remains relatively bearish with few signs of a near-term turnaround. Values traded on the Nigerian stock market have hit multi-year lows as foreign investors remain largely on the sidelines, and frustration from investors and corporates alike continues with the US dollar shortage worsening. While Nigeria’s crude output has increased, prices have remained under pressure. In Egypt, the central bank has ruled out allowing the pound to weaken until reserves are higher, and will focus instead on economic development and stabilising prices. Comments from the governor that the central bank would encourage capital flows and that companies would likely be able to access foreign exchange from next year may lend support to some listed firms. In Kenya, while the macro picture is encouraging, with Moody’s maintaining its stable outlook and tea exports recently setting a record, investors are not rushing to enter the market as most have been overweight on the country for some time. Moving forward, corporate earnings will be in focus. Tunisia, which is embarking on a Euro-denominated bond issue and has drafted a new investment code that includes a number of measures to encourage investment by foreign companies, may also draw more investor attention.
Market data as of February 26, 2016 Country/Region S&P GCC S&P Frontier BMI S&P Pan Arab MSCI Emerging Markets MSCI World Total Return MSCI EFM Africa Ex S.A.
Closing price
MTD
YTD
3M
1Y
3Y
138.61
4.37%
-8.03%
-11.32%
-26.83%
-0.56%
86.19 130.96 740.02 4,223.63 440.04
2.95% 3.98% -0.22% -0.29% 2.53%
-4.11% -7.76% -6.70% -6.25% -8.37%
-9.02% -10.18% -10.02% -8.22% -5.61%
-18.27% -25.79% -23.45% -10.65% -20.76%
-9.89% -0.89% -22.80% 18.99% -21.92%
125.43 1,593.46 1,395.07 767.33 1,631.89 199.13
11.22% 1.69% 4.68% 7.80% 7.87% 2.26%
-2.12% -13.42% -5.98% -3.04% -3.10% -0.80%
-2.03% -17.32% -9.88% -3.21% -7.52% -9.19%
-18.23% -33.93% -24.79% -22.19% -15.03% -24.27%
53.15% -5.56% -21.60% 12.69% -0.14% -51.61%
161.50 356,750.84 240.54 0.44 26.72 83.41 567.38 18.20 25.13 2.37 735.62 75.98 102.27
3.61% 1.09% -0.55% 0.21% 2.84% -5.38% 1.49% 4.63% 1.34% 1.19% 2.27% -2.50% -1.26%
-14.17% 2.73% -5.40% -3.75% 3.33% -11.23% -5.24% -0.19% -0.30% -15.48% 9.45% -6.22% -7.77%
-3.82% -3.04% -0.05% -3.45% 2.65% -14.89% 1.83% -0.68% -1.10% -13.50% 11.61% -16.31% -15.56%
-34.85% -24.26% -5.43% -2.38% -10.58% -11.35% -19.94% -23.07% -13.36% -16.09% -7.91% -34.52% -45.20%
-4.57% -36.84% -23.75% -4.38% -9.10% -3.60% -40.95% 34.01% -7.13% -43.92% -6.55% -25.71% -34.66%
Total return in local currency (MSCI) MSCI UAE Saudi Arabia MSCI Kuwait MSCI Qatar MSCI Oman MSCI Bahrain Total return in USD (MSCI) MSCI Egypt MSCI Turkey MSCI Jordan MSCI Lebanon MSCI Morocco MSCI Botswana MSCI Ghana MSCI Kenya MSCI Mauritius MSCI Nigeria MSCI Tunisia MSCI South Africa S&P Zambia Source: Bloomberg
-
3
Fixed income Credit markets in the Middle East and Africa have performed well as oil prices continued to rise and a lack of any further negative news in global markets helped to push prices up in the larger EM space. The focus at the end of February was the re-opening of the tap of the Bahrain five-year and ten-year issuances, following the tap and cancel of the issue the previous week due to the sudden rating downgrade of Bahrain by S&P. With its new sub-investment grade rating, Bahrain came to the market with an additional new issuance premium of 25 bps each. The five-year tap was announced at a yield of 5.95 percent (against the 5.70 percent yield of the cancelled tap) and the ten-year tap at a yield of 7.65 percent (against the earlier 7.40 percent). Bahrain’s secondary sovereign market prices adjusted in line with the new yield levels and traded above the re-offer levels before and after the tap was concluded, indicating that even with a highyield credit rating, demand for Bahrain bonds remains high at such attractive yield levels. The fact that the size of the tap was reduced from the US$ 750 million to US$ 600 million in the
recent issuance helped to keep demand strong for the bonds. A lack of any other big new issuances, coupled with a positive backdrop, helped to create a good squeeze in the high-grade segment of regional credits with names such as Taqa, Qtel and Seco rallying between 25-30 bps in spread terms towards the end of the month. The high-yield segment of the market also witnessed strong buying at the end of February, especially at the long-end where Asian life insurance buying helped to move prices up. There has been good demand for Dubai corporate names as well, with financial names from the region lagging the rally. Investors seem to believe that in a stable market, financials will be the first to come to the new issuance market. In Africa, activity levels have picked up in both the North Africa and Sub-Saharan Africa markets. Bonds in Morocco and Tunisia witnessed strong buying as real money accounts placed cash in those markets and offer-side inventory fell as prices moved up. The SSA (supranational, sub-sovereign and agency) space has recently rallied across the board, mainly on short covering by fast money
accounts and spreads compressed broadly by 30 bps. The main outperformers at the end of the month were high-beta names such as Ghana and Zambia, which rallied by more than three points each. However, towards the close of the week Zambia experienced some selling as several accounts looked to book profits. The main theme in SSA seems to be the covering of underweight positions in the portfolio by real money accounts on the back of stable oil prices and attractive yield levels. The new issuance pipeline is not expected to be active as markets remain volatile and issuers are expected to wait for better yield levels.
Sovereign CDS spreads
GCC CDS spreads
1000
Sov CDS
900 800
Abu Dhabi Saudi
700 600 500
Dubai Bahrain
400 300
Qatar Turkey
200 100 0 Jan-09Jul-09Jan-10Jul-10Jan-11Jul-11Jan-12Jul-12Jan-13Jul-13Jan-14Jul-14Jan-15Jul-15Jan-16Jul-16 Abu Dhabi
Dubai
Qatar
Saudi
Bahrain
Turkey
Level
Wk (bps)
YTD (bps)
Abu Dhabi
120
-1
27
Dubai Qatar Saudi
233 120 175
-13 -5 -4
-1 27 19
FI & Corp CDS NBAD ADCB Emirates Bank Samba
134 170 298 233
-7 11 -9 10
24 42 99 41
212
2
216
-27
-97 32
TAQA DP World
Source: Bloomberg
Source: Bloomberg
Market data as of February 29, 2016 Financials – senior
Maturity
Cpn
Bid
Ask
Bid sprd
Ask sprd
S&P
CCY
Type
ADCB
16-Sep-19
2.75%
99.38
100.13
200
178
A
USD
C
ADCB
6-Mar-23
4.50%
100.75
101.50
USD
C
29-Oct-49
6.38%
103.13
103.88
N.A.
USD
S
8-Oct-18
3.27%
101.38
102.13
N.A.
USD
S
26-Mar-18
2.50%
98.75
99.75
BBB-
USD
C
COMQAT
24-Jun-19
2.88%
99.50
100.50
C
NOORBK
28-Apr-20
2.79%
97.00
97.75
First Gulf Bk
14-Jan-19
3.25%
100.88
101.88
KIPCO
5-Feb-19
4.80%
102.38
103.38
NBAD
13-Aug-19
3.00%
101.50
102.25
7-Oct-19
3.13%
99.50
100.50
QNB
14-Feb-18
2.13%
100.00
100.75
CBDUH
17-Nov-20
4.00%
101.50
102.25
BATELCO
1-May-20
4.25%
94.00
95.50
DEWA
21-Oct-20
7.38%
117.75
Dolphin Energy
15-Dec-21
5.50%
110.50
118.25 111.25
DP World
2-Jul-17
6.25%
104.75
105.13
297 394 158 183 181 237 170 270 139 204 93 242 447 208 218 129
A-
ADIB
DP World
2-Jul-37
6.85%
95.50
96.50
309 424 187 234 213 257 206 306 162 233 132 259 490 218 232 157 546
ALHILA Bank Muscat
Natl Bk of Oman
Source: Bloomberg
536
A-
USD
N.A.
USD
S
N.A.
USD
C
BBB-
USD
C
AA-
USD
C
N.A.
USD
C
A+
USD
S
N.A.
USD
C
BB
USD
C
N.A.
USD
C
N.A.
USD
C
NR
USD
S
NR
USD
C
4
