GCC Economic Monthly

Document Sample
GCC Economic Monthly Powered By Docstoc
					                           GCC Economic Monthly
                           April 2010

                           Saving for the future
                           The current economic crisis has underscored the ultimate unsustainability
                           of emerging economies effectively subsidizing consumption in the West.
                           As global imbalances unravel, financial regulation is overhauled and the
                           long-term structural problems facing many economies become more
                           apparent, thrift is returning to favor. However, capitalizing on this
                           opportunity is throwing up numerous challenges in an environment of
                           heightened economic uncertainty.

                           •     The growing global imbalances of the pre-crisis years underscore the
                                 importance of savings. The recycling of trade surpluses and petrodollars
                                 from the emerging markets and oil-rich Middle Eastern nations into the global
                                 financial system encouraged leverage by keeping interest rates low and fueling
                                 asset bubbles.

                           •     Amid growing de-leveraging in the West, the nature of savings will
                                 evolve in the coming years. An ageing population as well as the
                                 unsustainability of government fiscal policy will likely drive personal and
                                 national savings in the industrialized nations. The unaffordability of state
                                 welfare provision for a large population and the needs created by longer life-
                                 expectancy and growing prosperity will stimulate saving in emerging markets.

                           •     The GCC savings profile is highly skewed by global standards and far
                                 removed from the Western norm of diversified portfolios. Limited
                                 savings alternatives have seen the GCC population place their savings mostly
                                 in cash and equities. Also, a relative lack of vehicles for collective investment,
                                 along with insufficient reliance on professional asset management, has
                                 exposed retail investors to significant volatility and risks.

                           •     Steps are being taken to address the issues plaguing the GCC with
                                 respect to savings. These include further liberalization of the financial
                                 markets and the introduction of new types of investment products. However,
                                 more can be done to channel individual savings into areas that will help the
                                 region’s long-term development and ensure the economic welfare of its

                           Exhibit 1: Saudi Arabia macroeconomic indicators
                           Indicator                                2007     2008     2009    2010F     2011F   2012F
                           Real GDP (%)                               3.4      4.5      0.1       4.0     4.1     4.4
Chief Economist                Hydrocarbon (%)                        0.5      5.0     -6.4       4.4     2.9     2.8
Dr Jarmo T. Kotilaine
j.kotilaine@ncbc.com           Non-hydrocarbon (%)                    4.7      4.3      3.0       3.7     4.6     5.1
                           Nominal GDP (%)                            7.1     21.9    -22.0      14.5     9.3     9.5
                           Inflation (%)                              4.0      9.9      4.4       5.0     5.2     4.8
                           Current account balance (% of GDP)        24.9     29.2      5.5       4.1     9.9    17.6
                           Fiscal balance (% of GDP)                 12.4     34.1     -3.3       5.0     3.6     0.5
Please refer to the last   Source: SAMA, NCBC Research
page for important
                                              Global economic overview
                                              What the latest data tell us…
                                              Positive signs in the US
                                              Against the backdrop of a major political achievement for the Obama administration
                                              due to the passage of its landmark health care reform, the economic situation in
The US consumer credit
                                              the US continues to gradually improve. The US Conference Board confidence index
increased for the first time
in a year on the back of                      increased from 46.4 to 52.5 in March. House prices, as measured by the Case-
higher demand for auto                        Shiller index rose by 0.3% in January. Consumer spending advanced for the fifth
loans                                         straight month, rising by 0.3% in February.

                                              The US Federal Reserve, while reiterating its commitment to maintain a loose
                                              monetary stance for the foreseeable future, has begun to scale back some of its
                                              crisis-time emergency measures by ending its mortgage-backed securities purchase
                                              program. This move followed the 25 basis point increase in the discount rate in
                                              February. Under the program, the Fed purchased around USD1.25trn of mortgage-
                                              backed securities that helped shore up the housing market and likely prevented the
                                              economy from falling into a much deeper recession. This has coincided with new
                                              steps on the part of the government to support the still fragile housing sector.

                                              European inflation up; manufacturing and services
                                              The situation in Europe looks more challenging. Consumer prices in the 16-nation
Euro-zone inflation
                                              Euro-zone rose 1.5% in March after a 0.9% gain in the February. This was largely
increased to 1.5% in March
                                              due to an increase in oil prices and ahead of the consensus forecast of 1.1%.
due to higher energy and
                                              Meanwhile, unemployment rate breached the 10% mark in February, for the first
food prices
                                              time since 1998, as the rate of joblessness increased to 19% in Spain. The rate in
                                              Germany and France stood at a high of 7.5% and 10.1%, respectively.

 Exhibit 2: CPI inflation in Euro-zone                                     Exhibit 3: Unemployment rate in Euro-zone
    2.0%                                                                    20.0%
    0.5%                                                                    12.0%

    0.0%                                                                    10.0%
    -1.0%                                                                   4.0%

    -1.5%                                                                   2.0%
                                                                                    Apr-09    Jun-09     Aug-09    Oct-09      Dec-09           Feb-10
            Apr-09   Jun-09      Aug-09     Oct-09     Dec-09     Feb-10
                                                                                             Euro-area   Germany   France   Italy       Spain
                     Euro-area    Germany     France     Italy   Spain

 Source: Eurostat, NCBC Research                                           Source: Eurostat, NCBC Research

                                              On a more positive note, the European manufacturing and services sector
                                              rebounded after a brief relapse, suggesting that the recovery is becoming more
                                              sustainable. Backed by increased business confidence in Germany, the Euro-zone’s
                                              manufacturing and services sectors grew at their fastest pace since 2007. The
                                              composite Purchasing Managers’ Index (PMI) rose from 53.7 to 55.5 in March as
                                              business confidence in Germany jumped from 95.2 to 98.1. Further, progress,
                                              however tentative, made in addressing the fiscal woes of Greece, most notably by

April 2010                                                                                                                                               2
                             GCC ECONOMIC MONTHLY

                             way of a Euro-zone and IMF-led EUR22bn economic last-resort support package,
                             helped underpin investor sentiment.

                             Deflation lingers in Japan
                             In a reminder that deflation continues to undermine private demand in the
Japanese consumer prices     economy, Japanese consumer prices fell for the 12th straight month in February,
continued to decline in      down 1.2% from a year earlier. Producer prices fell by 1.5% in the 14th
February forcing the         consecutive drop. To combat the deflationary pressure and promote credit growth
government to expand its     in the economy, the Bank of Japan (BoJ) doubled its 3-month loan facility to
emergency lending
                             JPY20trn (USD222bn) from JPY9.6trn lent so far.
                             Japanese industrial production declined for the first time in a year, down 0.9% in
                             February after a 2.7% increase in January. By contrast, exports increased by an
                             impressive 45.3% YoY to JPY5.1trn (USD57bn), the highest figure in the last 30
                             years. This in turn pushed Japan’s trade surplus to its highest level since 1982 –
                             JPY651bn. The growth in exports was largely driven by demand from Asia,
                             especially China, which saw a 47.7% increase in shipments from Japan after a
                             remarkable 79.9% gain in January.

                             Chinese growth revised upward
                             After recording an impressive 21% gain in January, China’s exports rose by an even
The World Bank revised       stronger 46% in February. Imports advanced by 45%. As a result, the trade surplus
China’s GDP growth           fell to a one-year low of USD7.6bn. The revival in exports has further brightened
estimate upward from         the prospects for the Chinese economy as reflected from the latest upward revision
9.0% to 9.5% for 2010        by the World Bank of its 2010 GDP growth forecast to 9.5% from an earlier
                             projection of 9.0% made in January. The bank, however, also urged Chinese
                             policymakers to withdraw their massive monetary stimulus which risks fueling
                             inflation and overheating of the economy through large asset price increases,
                             including a mounting risk of another housing bubble.

                             India raises policy rates
                             In a surprise move a month before its scheduled monetary policy review on 20
To combat inflationary       April, the Reserve Bank of India (RBI) raised its benchmark repo and reverse repo
pressure, the Reserve Bank   rates by 25 basis points to 5.0% and 3.5%, respectively. The move was designed
of India hiked its policy    to contain inflation and anchor inflation expectations. The rate hikes became
rates by 25 basis points     effectively inevitable due to mounting inflationary pressures, triggered in part by a
                             historically poor monsoon. India’s producer price inflation reached 9.9% in
                             February and retail prices rose almost twice as fast. The RBI is likely to further
                             increase the interest rates in its next policy review meeting in April, we believe.

April 2010                                                                                                           3
                                               GCC ECONOMIC MONTHLY

                                               Exhibit 4: India policy rates



                                                      Jan-08       Apr-08       Aug-08      Dec-08     Apr-09        Jul-09      Nov-09       Mar-10
                                                                                      Repo rates       Reverse repo rates

                                               Source: RBI, NCBC Research

                                               Equity markets upbeat in March
                                               Positive news on the economic front fueled a stock market recovery in March.
Driven by positive news on                     Germany emerged as the top performing G7 equity market, rising by 9.9%, while
the economic front, equity                     France and Italy gained 7.2% and 8.4%, respectively. Japan’s export surge helped
markets rallied during                         push the Nikkei 225 up by 9.5%. Japan was the best performing G7 equity market
March and further                              in 1Q10, up 5.2%, followed by the UK and US markets which gained 4.9% and
extended their gains
                                               4.1%, respectively during the quarter.

                                               An emerging market rally was led by Turkey and Russia. Turkey benefited from a
                                               rating upgrade on its sovereign debt, which helped drive an impressive 13.7% gain.
                                               The reduction in policy rates by the South African central bank helped trigger a
                                               7.4% rally. Saudi Arabia’s Tadawul All-Share Index (TASI) emerged as the best
                                               performing emerging market equity index during 1Q10, returning over 11.0%. By
                                               contrast, Chinese and Indian equities were subdued, with a -5.1% loss and a 0.4%
                                               gain, respectively, during the quarter. The two markets were depressed by a
                                               retreat from stimulus measures in the face of rising inflationary pressures.

 Exhibit 5: G7 equity markets performance                                        Exhibit 6: Emerging equity markets performance

        Italy                                                                            Turkey
     France                                                                              Russia
                                                                                    South Korea
                                                                                    South Africa
         US                                                                               Brazil
         UK                                                                               China
     Canada                                                                        Saudi Arabia

             -4.0%   -2.0%   0.0%   2.0%   4.0%     6.0%   8.0%   10.0% 12.0%                 -10.0%   -5.0%        0.0%      5.0%    10.0%       15.0%

                                      Mar-10      1Q10                                                               Mar-10   1Q10

 Source: Bloomberg, NCBC Research                                                Source: Bloomberg, NCBC Research

April 2010                                                                                                                                                4
                              The challenge of long-
                              term savings
                              The current recession has focused a great deal of attention on the unevenness of
                              savings globally as excess savings from emerging markets such as the Middle East
                              and China were recycled into the global financial system. This not only helped
                              finance the current account deficits of the leading consumer nations in the West but
The global savings glut was
one of the key contributing   also kept interest rates low in a way that depressed saving and encouraged
factors of the current        leverage in many Western economies. These imbalances have in turn highlighted
economic crisis               the importance of saving from the personal and macroeconomic perspective. As
                              leverage tentatively begins to give way to thrift, the structure and practices of long-
                              term savings are once again attracting more attention. Their importance, far
                              beyond the cyclical normalization, will be enhanced by the fraying welfare states
                              and ageing populations. Similar challenges are increasingly presenting themselves
                              also in emerging markets, in many cases all the more so because of the
                              unaffordability of large-scale welfare provision along with the expectations and
                              needs created by longer life-expectancy and growing prosperity.

                              Saving for the rainy day
                              The history of saving is essentially a history of financial insecurity. Personal saving
Savings in the West has       has been most challenged by generous welfare provision (although it has then been
evolved over the years        funded by compulsory saving, in other words taxation) and economic bubbles along
driven by policy innovation   with the wealth-effect, however illusory and ephemeral, they have created. The
and regulatory reforms        breakdown of the postwar welfare state model in many countries has necessitated
                              new thinking on savings, encouraging policy innovation and regulatory reform.
                              Elements of the welfare state have become effectively privatized, although the
                              asset price bubbles engendered by low interest rates during much of the past
                              decade significantly delayed the necessary progress in this area.

                              There is a growing volume of economic research to suggest that people’s saving
                              behavior is not rational. In some countries, high levels of savings seem to be
                              related to cultural factors, in others people neglect saving while understanding that
                              such a choice is irrational. Moreover, people tend to engage in what is known as
                              ‘hyperbolic discounting,’ disproportionately prioritizing the present over the future.
                              In some instances, there is a continued excessive confidence in the government’s
                              ability to ensure a minimal financial security even though demographic and fiscal
                              pressures have not only already necessitated modifications in welfare provision but
                              will make similar steps necessary in the future as well.

                              Partly as a result, governments the world over have made increasingly concerted
                              efforts to encourage and incentivize informed long-term savings. A number of steps
                              have been taken in this regard:

                              •   Pension reform. A growing number of Western economies, as well as a
A number of developed and         number of emerging markets, have had to overhaul their pension systems so
emerging economies have           as to encourage their long-term viability. While some countries have
reformed their pension            overhauled their retirement provision in a comprehensive, paradigmatic
systems to meet the long-
                                  fashion, others have opted for more piecemeal, parametric measures to seek a
term needs
                                  gradual transition toward greater sustainability. Whereas parametric reforms

April 2010                                                                                                              5
                             GCC ECONOMIC MONTHLY

                                  have typically involved modifications in key provisions, such as a higher
                                  retirement age or lower benefits, paradigmatic reforms have tended to mark a
                                  transition from pay-as-you-go systems to funded schemes. Instead of being a
                                  mechanism for merely transferring tax receipts from current tax-payers to
                                  retirees, pension authorities have turned into institutional investors which
                                  collect pension contribution from the economically active, invest and manage
                                  the funds and they remit them as pension payments or annuities when the
                                  person retires.

                             Exhibit 7: Pension fund assets (% of GDP)









                                           2001       2002      2003       2004       2005      2006       2007     2008

                                                     Canada   Finland   Ireland   Netherlands   Sw itzerland   US

                             Source: OECD, NCBC Research

                             •    Incentives. In order to encourage people to put aside money for their future
Governments have created          financial needs, many governments have sought to make saving more
several incentives such as        economically attractive. This typically happens through tax benefits, penalties
tax exemptions on savings
                                  and matching contributions. Contributions made to voluntary or occupational
instruments such as life
                                  pension schemes, life-insurance policies and other savings instruments are
insurance policies and
                                  often completely or partially exempt from taxes, hence enabling people to keep
pension schemes
                                  more of their income. Early withdrawals tend to result in the loss of at least
                                  some of these benefits.

                             •    Better information. A growing emphasis has been placed on better informing
                                  people about the need for, and benefits of, long-term savings. At the same
                                  time, regulatory provisions are used to protect retail investors from complex
                                  and risky products while also requiring financial service providers to clearly,
                                  accurately, and truthfully explain to their clients what the costs and benefits of
                                  their choices are. Many countries have sought to foster an independent
                                  financial advisor model of professionals whose job it is to enable individuals to
                                  objectively assess their financial needs and appropriate investment choices.

                             •    Consumer protection. Given the long-term impact of financial choice thanks
                                  to compound interest and volatility of returns, many countries have taken steps
                                  to directly protect consumers from mis-selling and fraud. Measures in this
                                  regards include specialized conflict-resolution mechanisms, ombudsmen and
                                  free-of-charge advisors. Financial regulators have often taken a direct role in

April 2010                                                                                                                 6
                               GCC ECONOMIC MONTHLY

                                   providing such information and support, along with steps to penalize
                                   intermediaries found guilty of wrongdoing.

                               As popular as these measures have become, their impact remains frustratingly
                               difficult to determine. Funding pensions is generally considered one of the most
                               economically beneficial of such endeavors since it makes the pension system
                               immune to demographic changes. Everyone saves for his own retirement, ideally
                               through personalized accounts, and tends to have at least some say over how the
                               funds are managed. Pension funds in turn evolve into large institutional investors
                               with a range of positive benefits for the financial sector and the broader economy.
                               Funded schemes, especially when combined with individual accounts, can also play
                               a broader positive role in stimulating financial literacy.

                               Incentives tend to encourage retirement saving, but it is far less clear whether they
                               do so in net terms or merely at the expense of other kinds of, non-incentivized
                               saving. Many consumers still have a strong preference for schemes and products
                               without such lock-ups and other restrictions because of their need, perceived or
                               real, for liquidity. Some provident schemes have tried to cater to this need by
                               enabling consumers to borrow against their long-term saving.

                               The importance of informed choices
                               The Western experience, for all its flaws, highlights the importance of the choices
Investor education has         people make about their long-term savings in anticipation of major financial
played a key role in driving   commitments such as home purchases, children’s education, and retirement.
long-term savings in the       Successful long-term investment necessitates a broad-based policy, which will
Western economies              strategically allocate funds across multiple asset classes. Indeed, empirical analysis
                               suggests that an investor’s choice of investment strategy over the long run
                               accounts for approximately 80% of the anticipated investment return.

                               Two trends in particular stand out as having brought beneficial effects:

                               •   Professional asset management is generally to the benefit of individual
                                   investors. A professional asset manager not only has better access to multiple
                                   asset classes, but can also leverage his skills to generate better, risk-adjusted
                                   returns than an untrained, retail investor. Professional investment management
                                   in turn has positive externalities, such as higher financial intermediation and
                                   better diversification of investable surpluses across asset classes. Financial
                                   market efficiency tends to improve as more investors rely on the informed
                                   choices of professional managers.

                               •   Portfolio investment offers an in-built risk management mechanism.
                                   The performance of any asset class depends on a number of variables including
                                   economic growth, interest rates, investor sentiment, and geopolitical risks. The
                                   vulnerability of individual asset classes to such factors is highly variable. For
                                   instance, at times of economic uncertainty, bonds or fixed income securities
                                   perform better than equities. A diversified, multi-asset portfolio hence enables
                                   investors to reduce the volatility and risks facing them.

                               In spite of considerable differences among countries, these two features
                               characterize long-term savings across the OECD economies. The role of collective
                               savings is in practice highly dependent on the nature of the pension system,

April 2010                                                                                                              7
                                GCC ECONOMIC MONTHLY

                                whereas the appetite for riskier assets – typically shares rather than bonds – has
                                tended to be greatest in the Anglo-Saxon countries.

                                Exhibit 8: Household financial assets in advanced economies (2008)

                                        US       15.0%       9.2%      1 .8%
                                                                        1                     31.9%                               28.0%    4.0%

                                        UK               32.2%               .1
                                                                             1%3.6% 8.4%                               51.2%               3.7%

                                    Japan                            55.2%                             3.1 3.3% 6.1
                                                                                                          %        %              28.0%    4.3%

                                 Germany                     39.5%                    6.9%      1
                                                                                               1 .3%       7.8%                 28.6%      5.9%

                                   France                31.0%           1.8% 7.8%         14.3%                          39.8%            5.2%

                                         Cash and deposits                    Bonds                                    Investment trusts
                                         Stocks and other equities            Insurance and pension                    Others

                                Source: Bank of Japan “Flow of Funds,” FRB “Flow of Funds Account,” ONS “United Kingdom Economic Accounts,”
                                Deutsche Bundesbank “Households’ financial assets and liabilities 1991-2008,” Banque de France “Financial Accounts”,
                                NCBC Research

                                You cannot outsource saving
                                The current crisis has highlighted the economic risks of ‘outsourcing saving,’ of
The current crisis has
                                relying on the savings of other countries to fuel consumption at home. The
highlighted the fallacy of
                                industrialized nations, particularly the US and the UK, during the past decade saw a
depending on others’
                                significant increase in consumption while their savings rates deteriorated. Gross
savings to promote
consumption at home for         national savings in the advanced economies (as defined by the IMF) declined from

the industrialized nations      22.1% of GDP to 19.5% in 1998-2008. Savings in the US declined from 18.8% to
                                12.6% in the same period. In fact, personal saving as a percentage of personal
                                disposable income trended down from 10% in the early 1980s to less than 2% in
                                the pre-crisis years. As discussed in our October 2009 Monthly (“Rebalancing via
                                deleveraging”), this behavior was in part rationalized by the concomitant asset
                                appreciation in the stock market and housing. However, a significant proportion of
                                the gain proved illusory and ultimately unsustainable as the liquidity-fueled bubble

                                For emerging markets, saving for domestic purposes is not less important than
The need for emerging           subsidizing consumption elsewhere. This is important given the fact that savings in
economies to utilize their      these economies can be channeled toward developing the physical and social
savings for domestic            infrastructure, which have suffered from years of under-investment. Also, the
purposes is extremely high      unaffordability of large-scale welfare provision along with the expectations and
given the physical and
                                needs created by longer life-expectancy and growing prosperity makes it imperative
social infrastructure deficit
                                for emerging markets to utilize their savings for domestic purposes. While the gross
they suffer from
                                national savings of the developing and emerging economies rose from 22.7% of
                                GDP in 1998 to 34.8% in 2008, much of this was recycled into purchases of
                                government debt issued by advanced economies, most notably the US. Developing
                                Asia in particular saw a significant increase in savings from 32.9% to 47.7% in the
                                1998-2008 period while the oil rich Middle Eastern nations saw their savings rate
                                increase from 19.7% to 41.9%, in the same period. Indeed, the USD548bn
                                increase in the US current account deficit between 1996 and 2004 was financed by

April 2010                                                                                                                                         8
                                             GCC ECONOMIC MONTHLY

                                             changes in the current account positions of developing countries, which moved from
                                             a collective deficit of USD90bn to a surplus of USD326bn in the same period.

 Exhibit 9: Gross national savings in developing Asia                  Exhibit 10: Gross national savings in the Middle East
    45%                                                                  40%

    40%                                                                  35%

    35%                                                                  30%
                                                                                      1980s                   1990s                  2000s
                1980s                   1990s                  2000s
                                                                                                 Gross national savings (% of GDP)
                           Gross national savings (% of GDP)

 Source: Bloomberg, NCBC Research                                      Source: Bloomberg, NCBC Research

April 2010                                                                                                                                   9
                             GCC savings profile
                             The savings profile of GCC individuals is highly skewed by international
                             standards and far removed from the Western norm of a diversified
The GCC savings profile
                             portfolio. Unlike their Western peers, retail investors in the GCC – faced with a far
differs markedly from the
                             narrower range of financial products – have mostly relied on equities and cash as
West with people tending
                             vehicles for their savings. Gold has been an important theme on a much smaller
to save mainly through
cash or equities             scale, albeit mainly in the form of finished gold jewelry, even if the role of
                             investment demand has grown of late. In recent years, real estate has emerged as
                             an increasingly popular alternative form of investment. However, these choices
                             have been highly cyclical in nature, leaving investors to resort to exit as their
                             primary means of risk management as markets correct. Problematically, cash
                             remains vulnerable to inflation, which has become an increasingly important
                             consideration in recent years. Moreover, investments in real estate and gold are
                             limited by a still restricted availability of mortgage finance and the challenges of
                             stocking physical gold. Consequently, the lack of diversity has exposed the
                             GCC retail investors to significant volatility.

                             Exhibit 11: Established modes of saving in the GCC


                                                                 GCC retail

                                            Gold (USD7-                                 Real estate

                             Source: NCBC Research

Collective savings has not   The role of collective saving in the form of life insurance, mutual funds and
evolved in the GCC as        pension funds is minimal by global standards in the GCC. These institutional
mutual funds and pension     investors, which form more than half of savings in the West, remain relatively
funds are in nascent stage
                             underdeveloped in the GCC, although the insurance sector is growing and the
of development
                             availability of different fund products improving. However, the broader savings
                             culture is only minimally linked to collective savings in spite of the long-standing
                             presence of partially funded compulsory government retirement schemes. As a
                             result of this state of affairs, many retail investors fail to benefit from professional
                             asset management and expose themselves to avoidable risks and volatility. Also,
                             the relative absence of long-term institutional investors such as mutual funds and
                             insurance companies has imparted a greater amount of volatility in the GCC
                             exchanges as compared to international standards.

                             Lastly, financial advice is not readily available and not always subject to
                             comprehensive regulation. This is in sharp contrast to the West where
                             governments, in an effort to boost long-term savings, have promoted financial

April 2010                                                                                                              10
                                              GCC ECONOMIC MONTHLY

                                              advice by professional and independent advisors. The situation in the Gulf is far less
                                              advanced with a great deal of work needed to be done in terms of fostering
                                              financial literacy and awareness across the age spectrum. Some of the regional
                                              regulators with legal mandate for investor education have made commendable
                                              initial efforts in this area in recent years. However, the magnitude of the challenge
                                              understandable reflects the young age of many asset classes.

                                              Faced with limited alternatives
                                              Even as savings behavior in the West varies a great deal between countries, and a
The economic crisis saw
                                              lack of investor awareness is widely recognized as a major challenge, Western
people from the GCC park
                                              consumers tend to invest in a diversified portfolio of products, not least because of
their savings on bank
                                              the importance of mandatory retirement schemes. For many GCC investors, the
deposits rather than other
financial instruments                         default choice is still between bank deposits and equities. Jewelry-dominated gold
                                              investment is well established but fairly modest in aggregate terms. Gold
                                              consumption in the GCC was estimated at USD7.4bn at the end of 2008, of which
                                              gold jewelry represented 90%. Total Saudi gold jewelry purchases in 2008 were
                                              worth just under USD3bn while investment demand was estimated at USD366mn,
                                              up from USD101mn in 2005. Real estate has gained popularity in recent years but
                                              access is limited by price, low liquidity and the lack of mortgage finance.

                                              In the areas of equities and real estate alike, losses during the current economic
                                              turmoil have once again shifted individual preferences toward bank deposits. This is
                                              despite the fact that these deposits offer no or even negative returns when
                                              adjusted for inflation. Inflation in Saudi Arabia, in spite of a marked decline from its
                                              2008 peak, is at historically high levels. At the end of February, consumer price
                                              inflation in Saudi Arabia rose to 4.6%. At the same time, interest rates, largely as a
                                              result of the US Dollar pegs, have declined to historically low levels and look likely
                                              to stay there for an extended period. The most notable regional exception is the
                                              UAE where tight loan-to-deposit ratios have left banks competing for deposits.

 Exhibit 12: Bank deposits in KSA & UAE (USD bn)                          Exhibit 13: Consumer price inflation in KSA & UAE
   300                                                                     9.0%
   250                                                                     7.0%
   100                                                                     2.0%
       50                                                                  0.0%
   -                                                                               Jan-09   Mar-09   May-09      Jul-09   Sep-09      Nov-09   Jan-10
            1Q08   2Q08      3Q08        4Q08        1Q09   2Q09   3Q09
                                    Saudi Arabia   UAE                                                KSA CPI inflation   UAE CPI inflation

 Source: Central banks, NCBC Research                                     Source: Central banks, NCBC Research

                                              Bank deposits in the region have been on a constant rise since the onset of the
                                              global financial crisis. Total deposits in Saudi Arabia increased from SAR761.6bn in
                                              1Q08 to over SAR940.5bn at the end of 2009. Further, deposits by businesses and
                                              individuals increased from SAR583.5bn to SAR697.6bn in the same period. In the
                                              UAE too, total deposits with banks rose from AED769.5bn in 1Q08 to over
                                              AED977.2bn at the end of 3Q09. These trends are likely to have been further

April 2010                                                                                                                                              11
                                                           GCC ECONOMIC MONTHLY

                                                           amplified by greater physical cash holdings, as well as the shift of money held in
                                                           funds from equity to money-market funds.

 Exhibit 14: Composition of bank deposits, Saudi Arabia Exhibit 15: Composition of bank deposits, UAE
    100%                                                                                                 100%

     90%                                                                                                  90%
     80%                                                                                                  80%

     70%                                                                                                  70%

     60%                                                                                                  60%

     50%                                                                                                  50%

     40%                                                                                                  40%

     30%                                                                                                  30%

     20%                                                                                                  20%

     10%                                                                                                  10%
                                                                                                                 1Q08      2Q08        3Q08         4Q08         1Q09         2Q09        3Q09
                 1Q08         2Q08         3Q08        4Q08         1Q09         2Q09       3Q09
                                                                                                                  Government   Public sector   Private sector   Individuals   Others
         Business and individuals    Government entities   Letters of credit   Repo   O/S remitances

 Source: SAMA, NCBC Research                                                                           Source: CBUAE, NCBC Research

                                                           Investment in equities reached a high in the years preceding the crisis as the stock
Volumes and turnover                                       market boom, further fuelled by the effective first-time take-off of the region’s
declined significantly in the                              young stock exchanges as a retail play, attracted investors. Many of them became
GCC equity markets during                                  active market participants, as reflected from the increase in trading volumes which
the current crisis                                         stood at around 323bn shares at the end of 2009 from 292bn and 275bn in the
                                                           GCC bourses in the preceding two years. Retail investor participation has ranged
                                                           between 70 and 90% in the regional equity market in the last few years. However,
                                                           the subsequent market correction and the ensuing liquidity squeeze negatively
                                                           affected the regional markets as reflected from the fall in turnover from USD997bn
                                                           in 2007 to USD862bn and USD511bn at the end of 2008 and 2009, respectively.
                                                           The absence of long-term institutional players has hit these markets, with volumes
                                                           declining significantly as retail investors suffered losses on account of short-term
                                                           bets on individual equities.

 Exhibit 16: GCC equity market trading volume                                                          Exhibit 17: GCC equity market turnover
 (bn shares)                                                                                           (USD bn)
   350                                                                                                  1,200

   300                                                                                                  1,000



                                                                                                                    2007                2008                    2009                   1Q10
                    2007                   2008                   2009                  1Q10
                                                                                                                                          Market turnover (USD bn)
                                             Trading volumes (in bns)

 Source: Bloomberg, NCBC Research                                                                      Source: Bloomberg, NCBC Research

                                                           The current financial crisis also saw a shift in investment patterns from the existing
                                                           institutional investors in the Gulf region, with mutual fund investors shifting their
                                                           allocation from equities to money markets. This is being reflected from the
                                                           changing investment pattern of Saudi mutual funds where investment into equities
                                                           has declined from SAR55.1bn in 1Q08 to around SAR29.3bn at the end of 2009. At
                                                           the same time, money market funds have seen an increase in inflow from around
                                                           SAR39.9bn to SAR53.5bn in the same period.

April 2010                                                                                                                                                                                       12
                              GCC ECONOMIC MONTHLY

                              Exhibit 18: Saudi mutual fund flows (Equity and money market funds)







                                            1Q-08        2Q-08      3Q-08      4Q-08      1Q-09        2Q-09     3Q-09      4Q-09
                                                        Equity fund flow s (SAR mn)    Money market fund flow s (SAR mn)

                              Source: CMA, SAMA, NCBC Research

                              Evolving role of collective savings
                              The penetration of collective savings products such as mutual funds and life
                              insurance has until recently been extremely low in the GCC countries. Both
                              occupational and especially voluntary pension schemes are largely absent.
                              Nonetheless, with an increasing preference for diversification of savings in the face
Collective savings
instruments such as           of financial market liberalization, the savings profile is undergoing a shift and new
mutual funds and              products are gaining considerable traction. For instance, the Saudi Arabian mutual
insurance are gaining         fund industry saw its assets under management expand at a CAGR of 18.2% over
traction in the GCC markets   2003-2007 before falling by 28.8% YoY to USD20.0bn in 2008 due to the global
                              credit crunch. The number of funds increased steadily from 52 in 1992 to 244 in
                              2008. Reflecting this momentum, the total number of authorized entities in KSA
                              engaged in securities and investment banking reached a peak of 110 in 2008
                              compared to just 8 in 2004. The number of licenses granted by CMA increased
                              42.8% YoY during 2008. Following the crisis, however, the sector has embarked on
                              a period of consolidation.

                              Exhibit 19: Growth in the KSA mutual fund industry

                                           40                                                                               300


                                           20                                                                               150


                                            0                                                                               0
                                                 2002       2003    2004     2005      2006     2007      2008    2009

                                                 Assets under mangement (LHS)            Number of investment funds (RHS)

                              Source: SAMA, NCBC Research

April 2010                                                                                                                          13

             The insurance sector meanwhile remains nascent. Overall insurance penetration
             averaged a mere 1.0% of GDP as compared to 5%-15% in the developed
             economies as of 2009. Penetration in Saudi Arabia is only 0.6% of GDP, most of it
             non-life insurance driven by mandatory health and motor insurance. Life insurance
             in 2008 still accounted for only 5.4% of the Saudi market where penetration was
             less than a fifth of the regional average. Nonetheless, growing awareness coupled
             with regulatory reforms and the growth of Shariah-compliant Takaful solutions, will
             likely drive life insurance to faster growth. The GCC insurance industry fared well
             even during the financial crisis as insurance premiums written surged a significant
             28% YoY to reach USD10.6bn in 2009. This compares to a global rate of only 3.4%.

             New savings alternatives in the Gulf
             The Gulf region has in recent years seen a spate of positive developments designed
             to provide individual investors with a wider range of investment opportunities. In
             particular, the rise of Shariah-compliant finance has made possible the introduction
             of a number of new types of products, most notably sukuk. Although high minimum
             investment requirements leave most sukuk beyond the means of retail investors,
             the growth of the sector has spawned a number of sukuk funds. These products not
             only address cultural sensitivities but also offer an attractive combination of relative
             capital protection and predictable returns to investors. More generally, various
             Shariah-compliant products have attracted growing numbers of consumers to
             financial services.

             In Saudi Arabia, a decision by the Capital Market Authority (CMA) to authorize the
             Kingdoms’ first Exchange Traded Fund (ETF) this year opens up the way for a wide
             range of new asset classes and products in a cost-effective manner that makes
             them accessible also to retail investors. It further enables foreign investors more
             easy access to the Saudi market. Also the Abu Dhabi Securities Exchange is
             launching ETFs. Besides ETFs, Real Estate Investment Trusts (REITs) are also set to
             gain traction after the Central Bank of Bahrain authorized the country’s first REIT.
             Especially Islamic REITs hold significant potential for growth with increased
             investor’s appetite for diversification and the rising popularity of Shariah-compliant

April 2010                                                                                          14
                          GCC economic overview
                          The month of March brought positive news in the GCC region as consumer
                          confidence increased and a proposal for restructuring the debts of the Dubai World
                          conglomerate further boosted market sentiment. The latest Bayt.com/YouGov
                          survey indicated that consumer confidence in the UAE increased by 9.3 points, even
                          though 40% of respondents still claimed to be financially worse off than last year.
                          Consumer propensity to consume in the UAE moved up 13.2 points to reach the
                          highest level among its regional peers. These indicators echo other recent polls on
                          consumer and investor sentiment in the Gulf.

                          Equity markets rally
                          Driven by the positive economic developments, the GCC equity markets rallied
The GCC equity markets    during March. The Dubai Financial Market (DFM) index emerged as the best
were upbeat in March as   performing market, gaining 15.7% during the month. The gains were led by real
the Dubai World debt      estate and banking stocks with Emaar Properties the top performer, rising by
restructuring proposals   34.2% during the month. The Real Estate & Construction sub-index gained 28.2%
boosted the markets
                          while the Banking sub-index returned 12.2% in the course of March.

                          The Qatar Exchange was the second best performing GCC market with a healthy
                          8.6% increase during the month. The gains were largely driven by positive
                          performance by banking stocks which rose by more than 10% during the month
                          following a decision by the Financial Markets Authority (FMA) which allows them to
                          start trading stocks again. BAnks were unofficially banned from brokerage after
                          selling their portfolios to the government last year. Saudi Arabia’s Tadawul All-
                          Share Index (TASI) returned 5.6% during March with the Petrochemicals sub-index
                          leading the way with a 8.1% gain. Abu Dhabi’s benchmark ADSM returned 7.6%
                          driven by advanced in real estate and banking stocks. The Bahraini and Kuwaiti
                          indices returned approximately 2.0% in March.

                          Exhibit 20: GCC equity market performance

                                     Abu Dhabi
                                  Saudi Arabia
                                         Kuw ait

                                               0.0%             5.0%      10.0%        15.0%      20.0%
                                                                       Mar-10   1Q10

                          Source: Bloomberg, Gulfbase, NCBC Research

April 2010                                                                                                      15
                             GCC ECONOMIC MONTHLY

                             Oil prices upbeat
                             After exhibiting considerable volatility in February, oil prices moved up fairly
Driven by increasing hopes   consistently during March, averaging USD77 per barrel during the month, up USD5
of an economic recovery,     on the February average. The increase was in large part driven by positive
crude oil prices gained      economic data across the globe, reinforcing the belief that the world economy has
USD5 per barrel on the       turned the corner. A decision by OPEC to keep the production quotas of its member
February average
                             states unchanged lent additional support to prices. The gain in March took the 1Q10
                             average to USD75.5 per barrel, almost double the USD43 figure a year earlier.

                             Oil prices increased during the month despite rising inventory levels in the US
                             where stockpiles rose by 7.3mn barrels for the week ending on 26 March 2010. In
                             fact, the OECD oil inventory stood at around 2.67bn barrels (equivalent to 58 days
                             of forward cover) during the first quarter, 69mn barrels above the 5-year average.
                             However, the demand side is beginning to gather steam. The US Energy
                             Information Administration (EIA) now expects global oil consumption to rise by
                             1.5mn barrels per day this year, up from an earlier estimate of 1.2mn barrels per
                             day. However, the higher demand will likely be offset by growth in non-OPEC
                             supply which is likely to increase by around 550,000 barrels per day in 2010. This
                             should help contain oil prices during the year and close to our current projection of

                             Exhibit 21: Crude oil prices





                                                                                   Crude oil prices averaged USD75.5
                                   72                                              per barrel during 1Q10, as
                                   70                                              com pared to USD43 per barrel in
                                                                                   the sam e period, a year earlier



                                   4-Jan-10     18-Jan-10     1-Feb-10     15-Feb-10     1-Mar-10   15-Mar-10   29-Mar-10
                                                                      Crude oil (USD per barrel)

                             Source: Bloomberg, OPEC, NCBC Research

April 2010                                                                                                                  16
                                                         Country outlook
                                                         Saudi Arabia
                                                         Exhibit 22: Saudi Arabia macroeconomic indicators

                                                                       Indicator                  2007            2008            2009           2010F             2011F             2012F
                                                         Real GDP (%)                                  3.4           4.5             0.1              4.0               4.1             4.4
                                                           Hydrocarbon (%)                             0.5           5.0            -6.4              4.4               2.9             2.8
                                                           Non-hydrocarbon (%)                         4.7           4.3             3.0              3.7               4.6             5.1
                                                         Nominal GDP (%)                               7.1         21.9           -22.0              14.5               9.3             9.5
                                                         Inflation (%)                                 4.0           9.9             4.4              5.0               5.2             4.8
                                                         Current account balance
                                                                                                      24.9         29.2              5.5              4.1               9.9           17.6
                                                         (% of GDP)
                                                         Fiscal balance (% of GDP)                    12.4         34.1             -3.3              5.0               3.6             0.5
                                                         Source: SAMA, NCBC Research

                                                         Saudi bank profitability declines
                                                         According to the Saudi Arabian Monetary Agency (SAMA), the net income of the
                                                         Kingdom's 12 commercial banks declined by approximately 20% to SAR2.85bn at
                                                         the end of January 2010 from SAR3.58bn a year earlier. Net loans grew by 0.5%
                                                         MoM in February, mainly due to increased lending to the private sector (0.6%
                                                         MoM). Deposits with SAMA declined for the first time since September 2009, by 9%
                                                         MoM. The growth in total customer deposits was mainly driven by growth in time
                                                         deposits which grew 3.2% MoM, while demand deposits remained flat. However, on
                                                         a YTD basis, demand deposits showed an increase of 2.3% against a 1.7% decline
                                                         in time deposits. A higher proportion of demand deposits in the total customer
                                                         deposit base is likely to enable the banks to boost their net interest margins while
                                                         the tentative growth in loan books should help increase net interest income QoQ in
                                                         the first quarter of 2010.

 Exhibit 23: Growth in bank credit and deposits                                               Exhibit 24: Growth in bank profitability
   1,200                                                                                      3,500                                                                                   300%

                                                                                              3,000                                                                                   250%
    600                                                                                       1,500
    200                                                                                                                                                                               0%

     -                                                                                         -500                                                                                   -50%
             Jul-09   Aug-09      Sep-09     Oct-09    Nov-09     Dec-09    Jan-10   Feb-10            Jul-09   Aug-09   Sep-09   Oct-09    Nov-09    Dec-09       Jan-10   Feb-10

                                                                                                                           Net profit (SAR mn)       YoY grow th
                               Total credit (SAR bn)   Total deposits (SAR bn)

 Source: SAMA, NCBC Research                                                                  Source: SAMA, NCBC Research

                                                         The pace of private sector recovery remains one of the main near-term challenges
                                                         facing the Saudi economy. New bank lending to the private sector has been highly
                                                         volatile in recent months but a positive trend is yet to emerge, partly because of
                                                         the apparent preference of many lenders for government projects. Banks are still
                                                         cautious in the face of regional corporate scandals and, moreover, the low interest
                                                         rate environment creates attractive low-risk investment opportunities in the form of
                                                         placing current deposits in government securities. The low probability of a near-
                                                         term interest rate in the US constitutes a risk in this regard. However, private

April 2010                                                                                                                                                                                  17

             sector investments increased by 8.4% MoM in February, and leading indicators of
             consumption are also edging up. Point of sale transactions have risen dramatically
             in recent months (by an annual 38.6% to SAR5.85bn in February), as have letters
             of credit for private sector imports (by an annual 31.5% to SAR13.5bn in February)
             after a year of consistent declines. Imports though Saudi ports were up by 18%
             YoY in February, led by a 26% increase in consumer goods and a 37% gain in
             construction materials.

             Persistent inflation pressure
             According to the General Statistics Department, Ministry of Finance, inflation as
             measured by the Consumer Price Index accelerated to 4.6% YoY in February, the
             highest figure in the last eight months and up on 4.1% in January. The increase
             was largely driven by the rent, fuel & water and food & beverages indices which
             rose by 10.6% and 4.0%, respectively. SAMA recently acknowledged that a lack of
             affordable housing units in the Kingdom will likely continue to push up rental prices,
             thereby sustaining inflationary pressures in the economy at least in the near term.

             Exhibit 25: KSA CPI, housing and food inflation







                Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Jan-08 Jun-08 Nov-08 Apr-09 Aug-09 Jan-10
                                       CPI inflation   Food inflation   Housing inflation

             Source: SAMA, NCBC Research

             Construction grew in 2009
             According to the Ministry of Finance, the Saudi Arabian construction sector
             expanded by a healthy 3.9% in 2009 with even the real estate sector registering
             1.9% growth. Apart from commercial and residential real estate development, the
             Saudi government’s focus on building core infrastructure, including roads, schools,
             colleges and hospitals, has driven growth in the construction sector even in the face
             of a highly uncertain economic climate.

April 2010                                                                                        18

             United Arab Emirates
             Exhibit 26: UAE macroeconomic indicators

                          Indicator                      2007        2008        2009*    2010F   2011F   2012F
             Real GDP Growth (%)                            6.1         7.4        -0.6     0.9     3.1     4.1
               Hydrocarbon (%)                             -1.2         3.3        -6.3     2.0     2.2     4.2

               Non-hydrocarbon (%)                          8.8         8.7        1.0      0.2     3.7     4.1

             Nominal GDP (%)                              22.2         36.0       -11.9     8.0    11.0    12.0
             Inflation (%)                                11.1         12.3         1.0     1.6     4.2     4.7
             Current account balance
                                                          18.1         14.0        -2.7     5.9    13.1    20.3
             (% of GDP)
             Fiscal balance (% of GDP)                    26.7         12.4         0.4     5.6     9.6    12.2

             Source: *IMF Article IV Consultation February 2010, NCBC Research

             Dubai debt restructuring proposal boosts sentiment
             The Dubai government-related corporates Dubai World and Nakheel PJSC finally
             unveiled an eagerly awaited debt restructuring proposal on 25 March. Under the
             proposed plan, the Dubai Government will provide up to USD9.5bn of new funds,
             USD8bn to Nakheel and the rest to Dubai World. USD3.8bn of the Nakheel funds
             will come from the Government of Dubai over a three-year period and USD5.7bn
             from the support provided by Abu Dhabi last year. In connection with the additional
             backing, Nakheel will honor all its USD1.7bn of outstanding sukuk issues falling due
             in 2010 and 2011. This may have been partly motivated by concern that a failure to
             repay them would have created a major risk of the entire restructuring deal
             becoming blocked by sukuk-holders.

             In spite of the positive progress, the Dubai World deal is yet to be ratified by the
             creditors. Nor is it clear that it really represents an end to the Emirate’s economic
             woes. Even as some interested parties voiced consternation over the differentiated
             treatment of the creditors, the problems seem manageable, possibly in part
             through additional concessions. More seriously, however, the deal addresses only
             one aspect of Dubai’s leverage-related challenges. While Dubai World sought a
             restructuring of USD22bn of loans, the total debts of the Emirate are estimated at
             more than USD109bn. There is hence a risk that other government-related entities
             will follow Dubai World’s precedent. Moreover, any attempts to revive property
             development ventures at the moment risks aggravating the situation of excess
             supply in the market and worsening the near-term outlook for real estate prices.

             Improved economic news
             Along with its efforts to stabilize the corporate sphere, the Dubai Government is
             planning to embark on fiscal consolidation by cutting spending by 15% in 2010.
             According to the Dubai Department of Finance, the Government plans to seek
             savings around AED3.7bn in an effort to reduce the Emirate’s budget deficit of
             AED6bn. The Dubai Government in its 2010 budget had projected a 12% fall in
             total revenues to AED29.4bn from the previous year's estimate of AED33.5bn while
             expenditure was set to be 6.1% lower than the 2009 estimate of AED35.4bn.

             Consumer prices in the UAE continued their downward course last month with a
             0.16% annualized decline, slightly less than the 0.32% decrease recorded in
             January. Prices in the main household category, which accounts for 39% of the

April 2010                                                                                                  19

             consumer price inflation basket, declined by 0.32% over the previous month while
             food prices fell by 0.72%.

             In marked contrast to the ongoing troubles in Dubai, Abu Dhabi is faced with a
             trade boom. Despite a collapse in global trade, the Emirate’s foreign trade grew by
             9% YoY to AED112.1bn in 2009. What makes this development even impressive
             was the dependence of this growth on non-oil exports which increased by a
             significant 52% to AED9.5bn. Re-exports increased by 39% to AED8.7bn while
             imports grew by 4% to AED93.9bn.

             UAE banks boost capital
             After going through a historically unprecedented economic calamity, banks
             operating in the UAE are boosting capital to protect themselves from future shocks.
             The Central Bank of the UAE recently announced that UAE banks had increased
             their shareholders' equity by 8.4% in the first two months of 2010. The increase in
             capital base is in line with the central bank’s directive on creating buffers against
             internal and external shocks. The consolidated capital base of the 24 national and
             28 foreign banks increased from AED231.4bn at the end of 2009 to AED251bn at
             the end of February.

April 2010                                                                                           20

             Renewed property market weakness
             After showing signs of improvement in the final months of 2009, property sales in
             Kuwait relapsed in the first two months of 2010, highlighting the severity of the
             structural challenges still facing the market. According to industry reports, property
             transactions in the commercial, housing and investment sectors declined by 34% to
             a total of 400 deals, while the value of property sales declined by 40% to
             KWD120mn in the first two months of 2010 from 2009-end.

             Fiscal resilience paving the way for a recovery.
             According to Al Shall economic report, Kuwait's total state earnings reached
             USD55.5bn (KWD16bn) over the last 11 months, a full 98.4% higher than the
             budgeted earnings of USD 27.9bn (KWD8.07bn). Revenues from the hydrocarbon
             sector reached USD52.5bn (KWD15.1bn), 119.1% ahead of the budgeted oil
             revenues of USD23.9bn (KWD6.9bn), while the government’s non-oil receipts
             reached USD2.93bn (KWD847.6mn) during the period.

             The fiscal resilience of Kuwait, along with the progress made in recent months to
             overcome the political stalemate of last year, is potentially paving the way for a
             robust economic rebound. Among other things, the Kuwaiti Government has sought
             new ways of mobilizing its fiscal surpluses into capital spending through a
             combination of stimulus measures and a four-year investment plan. These steps
             are now likely to result in a recovery mirroring broader regional trends. Kuwaiti
             Government sources have recently suggested that a real GDP contraction of 1.5-
             2.0% last year should give way to growth of possibly more than 4.0% this year.

April 2010                                                                                        21
                                         GCC ECONOMIC MONTHLY

The authors of this document hereby certify that the views expressed in this document accurately reflect their personal views regarding the
securities and companies that are the subject of this document. The authors also certify that neither they nor their respective spouses or
dependants (if relevant) hold a beneficial interest in the securities that are the subject of this document. Funds managed by NCB Capital and
its subsidiaries for third parties may own the securities that are the subject of this document. NCB Capital or its subsidiaries may own
securities in one or more of the aforementioned companies, or funds or in funds managed by third parties The authors of this document may
own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which
they have no discretion. The Investment Banking division of NCB Capital may be in the process of soliciting or executing fee earning
mandates for companies that are either the subject of this document or are mentioned in this document.

This document is issued to the person to whom NCB Capital has issued it. This document is intended for general information purposes only,
and may not be reproduced or redistributed to any other person. This document is not intended as an offer or solicitation with respect to the
purchase or sale of any security. This document is not intended to take into account any investment suitability needs of the recipient. In
particular, this document is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person
who may receive this document. NCB Capital strongly advises every potential investor to seek professional legal, accounting and financial
guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations
contained in this document take into account both risk and expected return. Information and opinions contained in this document have been
compiled or arrived at by NCB Capital from sources believed to be reliable, but NCB Capital has not independently verified the contents of this
document and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as
to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this
document. To the maximum extent permitted by applicable law and regulation, NCB Capital shall not be liable for any loss that may arise
from the use of this document or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and
statements regarding future prospects contained in this document may not be realized. All opinions and estimates included in this document
constitute NCB Capital’s judgment as of the date of production of this document, and are subject to change without notice. Past performance
of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can
go down as well as up. An investor may get back less than he or she originally invested. Additionally, fees may apply on investments in
securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this document may be
reproduced without the written permission of NCB Capital. Neither this document nor any copy hereof may be distributed in any jurisdiction
outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this document should make
themselves aware, of and adhere to, any such restrictions. By accepting this document, the recipient agrees to be bound by the foregoing

NCB Capital is authorised by the Capital Market Authority of the Kingdom of Saudi Arabia to carry out dealing, as principal and agent, and
underwriting, managing, arranging, advising and custody, with respect to securities under licence number 37-06046. NCB Capital’s registered
office is at 25th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 22216, Riyadh 11495, Kingdom of Saudi Arabia.

April 2010                                                                                                                                     22

Shared By: