Market_Cap_GCC-112008 by ashrafp



Subject            :     GCC Market Capitalization

Prepared by             : Global Investment House “Global”
Date                    : November 2008

      Global           : Plunge in GCC Market Capitalization

Global Investment House – Kuwait – GCC Market Capitalization -The GCC stock markets have
lost 47.5% since the start of the year wiping off US$538bn from the market capitalization while losing US$373bn
since the start of October 2008. The regions largest markets witnessed the bulk of the decline as slowing world
economic growth, falling crude oil prices and the prevailing financial crisis have cast a bearish spell. Saudi Arabia,
the largest market in the region, lost US$254bn of its capitalization since the start of the year while UAE and
Kuwait markets lost US$141bn and US$101bn of their capitalization respectively since the start of the year.

Though, the sub-prime mortgage crisis came to the fore in 2007, the real effect of the crisis was felt when
Lehman Brothers filed for bankruptcy in September 2008 which was followed by bail-outs of other major
financial firms. The uncertainty and intensifying of the credit crunch made investors exit the equity markets
leading to large falls world over. Credit crunch was accompanied by fears of world economic slowdown, which
was confirmed by the IMF recently when it slashed the world economic growth forecast by 0.8% to 2.2% for
2009, sharp decline in crude oil prices since reaching an all-time high in July 2008 and panic selling by investors
caught the GCC markets in the cycle which has lost US$373bn since the start of October 2008.

The Saudi market, the largest market in GCC has witnessed a decline of US$254bn of market capitalization
despite 16 new listings and stood at US$265bn on November 16, 2008 compared to US$519bn at the start of the
year. Though Insurance and Multi-Investment sector registered massive falls of 70.4% and 62.1% YTD
respectively due to the presence of large investment portfolios on their balance sheets, it were the heavy weights
of the market, banking and petrochemical sectors with a combined market capitalization of 59.2% ,which
accounted for the bulk of loss in capitalization. Petro-chemical industry lost 63.7% YTD while the banking sector
lost 47.0% YTD. Telecommunications sector, the third largest constituent, accounting for 14.2% of total market
capitalization, witnessed a decline of 26.1% YTD. The Saudi Market has lost US$122bn (31.5%) of its
capitalization since the start of October 2008.

Table 01: Market Capitalizations
        Country        Market Cap    Market Cap    Market Cap     Market Cap     YTD       QTD           QTD
                          Jan 1        Sep 29      November 16     Change       Change    Change       Change %
                        (US$bn)       (US$bn)       (US$bn)        (US$bn)        %       (US$bn)
    Bahrain                   27.0          27.3           23.3          -3.7   -13.7%         -4.0         -14.4%
    Kuwait                   210.5         199.4          109.9        -100.6   -47.8%        -89.5         -44.9%
    Oman                      23.0          24.3           15.7          -7.3   -31.7%         -8.6         -35.4%
    Qatar                     95.5         109.6           64.3         -31.2   -32.7%        -45.3         -41.4%
    Saudi Arabia             519.0         387.0          265.0        -254.0   -48.9%       -122.0         -31.5%
    UAE                      257.4         220.0          116.0        -141.4   -54.9%       -104.0         -47.3%
    Total                   1132.5         967.7          594.2        -538.3    47.5%       -373.5         -38.6%

Source: Zawya & Global Research
YTD as on November 16, 2008
Kuwait Stock market has lost US$101bn (47.8%) of its capitalization since the start of the year. The Kuwait
market also became a victim of the current crisis. The Kuwait stock market, dominated by banks and investment
companies, saw a massive decline particularly in the wake of the Gulf Bank incident which provoked the
government to intervene. The Kuwait stock market has lost US$89bn of it’s capitalization since the start of
October 2008. The banking sector fell by 37.84% YTD and the investment sector fell by 46.62% YTD as
measured by the Global Index. Uncertainty and health of the financial institutions along with the falling crude oil
prices is playing with the minds of the investors.

The combined capitalization of the Dubai and Abu Dhabi stock exchanges declined by US$141bn since the start
of the year. Both the stock markets have lost a combined US$104bn of their capitalization since the start of
October 2008. The global financial crisis along with fears of fall in tourism and transit-related services in the wake
of lower world economic growth and apprehensions over the state of the property market in the UAE has taken
its toll on the market capitalizations.

The Bahraini market witnessed the least decline of US$3.6bn in its market capitalization since the start of the year.
Like in other GCC countries the investment and the banking sector accounted for bulk of the fall. However the
decline was held back by a YTD rise in the hotel and tourism industry.

Qatar and Omani Index witnessed a decline of US$31bn and US$7bn of their market capitalization since the start
of the year. Similar to other countries the Qatar and Oman stock markets took a deep plunge after October
wiping off US$45 and US$9bn from their capitalization respectively.

Large Capitalization Companies

5 Saudi companies were among the top 10 GCC countries in terms of Market Cap at the start of the year, though
the course of the year has seen the top ten composition change to a little extent.

Table 02: GCC Large Cap 10 Companies at beginning of 2008
     Company          Country   Market Cap    Market Cap      Market Cap     Market Cap       QTD         YTD        QTD
                                  Jan 2         Sep 29          Nov 16        Change         Change      Change     Change
                                 (US$bn)       (US$bn)         (US$bn)        (US$bn)       (US$bn)        %          %
 Saudi Basic
Industries Corp       KSA             130.9            84.4          44.6           -86.3        -39.8     -65.9%   -47.1%
 Al-Rajhi Bank        KSA              44.5            31.9          24.2           -20.3         -7.7     -45.5%   -24.0%
Saudi Telecom
Company               KSA              43.3            34.4          30.0           -13.3         -4.3     -30.6%   -12.6%
Etisalat              UAE              31.9            27.3          20.7           -11.2         -6.6     -35.0%   -24.2%
Samba Financial
Group                 KSA              27.7            16.8          14.8           -12.9         -1.9     -46.5%   -11.6%
Co. (Zain)            KW               26.5            23.6          15.8           -10.7         -7.8     -40.5%   -33.1%
Emaar Properties      UAE              25.2            12.9           4.8           -20.5         -8.1     -81.1%   -63.0%
Industries Qatar      Qatar            21.2            21.7          11.0           -10.3        -10.7     -48.4%   -49.5%
Kingdom Holding
Company               KSA              20.6            12.1           8.2           -12.4         -3.9     -60.0%   -32.0%
National Bank of
Kuwait                Kuwait           19.1            18.4          11.6            -7.5         -6.8     -39.2%   -36.9%

Source: Respective Stock Exchanges & Global Research

SABIC, the largest company in GCC lost US$86bn of its capitalization during the year while losing US$40bn
since the start of October 2008 on the back of slowing world economy and falling crude oil prices which is likely
to make a dent on profitability going forward.

Banks and Financial services companies which have a heavy presence in the top 10 companies also witnessed a
steep decline in capitalization amid the global financial crisis and the liquidity crunch. Al-Rajhi Banking and

Investment Corp. lost US$20bn of its capitalization YTD while losing approximately US$7.6bn since the start of
October 2008. Samba Financial group lost US$13bn of its capitalization YTD while losing US$2bn since the start
of October 2008. National Bank of Kuwait witnessed a decline in its capitalization by US$7.4bn YTD while losing
US$6.8bn since the start of October 2008.

General market factors along with industry specific factors like falling revenues per user and intensifying
competition took its toll on the telecommunication companies, which also have a significant presence in the top
ten companies. Saudi Telecom witnessed a decline in its capitalization by US$13.2bn YTD while declining by
US$4.3bn since the start of October 2008. Etisalat witnessed a decline in its capitalization by US$11.2bn while
declining by US$6.6bn since the start of October 2008. Mobile Telecommunications Company witnessed a
decline of US$10.7bn YTD while declining by US$7.8bn by since the start of October 2008.

Emaar Properties faced the worst of the brunt with its market capitalization declining by US$20.5bn or 81.1%
YTD while declining by US$8.1bn since the start of October 2008.

The recent sharp decline in market capitalizations has pulled the valuations down to attractive levels. For many
companies we believe that the time is ripe for value picking for long-term investors. Stocks such as SABIC and
Industries Qatar continue to be attractive despite lower economic growth and oil price projection for 2009.
Capacity expansion, synergies in production and stretching of distribution overseas particularly in Europe and
America through acquisitions will continue to drive growth.

In the banking sector Al-Rajhi Bank, SAMBA Financial Group and National Bank of Kuwait are trading at
attractive levels. Al-Rajhi Bank is the largest Islamic bank in the world. Due to its nature the bank has stayed
relatively safe from the current financial turmoil and is well-placed to benefit from further growth and
development of the Islamic banking market. SAMBA Financial Group is looking to diversify its revenue sources
by expanding into regional countries while National Bank of Kuwait, which is the market leader in Kuwait, is also
expanding its stakes beyond its borders.

In telecom sector, Emirates Telecom and Mobile Telecommunication Company have also come down to
attractive levels. These companies are looking to expand in low-penetration markets to offset slower subscriber
growth and falling ARPU in their own countries. Broadband penetration is still very low in many developing
countries allowing these companies to tap on the massive growth potential in this segment. In markets with high
penetration, the focus is shifting to provision of value added services which will supplement the revenue stream
for these companies.

In the Real-Estate sector we have seen a run down on Emaar Properties which has declined by 81.1% YTD on
apprehensions of a major downturn in the property market. Though a correction is taking place in the UAE real
estate market we believe that the fundamentals remain strong. Real-estate is an important part of the UAE
economy and the government is likely to support it in case of any major downturn. At the same time all the subs-
sectors are not likely to witness correction, for example in case of housing sector still there is a growing demand.
Even in the event of problems arising in the Dubai real estate sector we believe that there is a room for growth in
Abu Dhabi, Saudi and Kuwait real estate market which will support further growth for real estate players. Thus,
we believe that many real-estate companies are also providing a good opportunity to investors at current

We are of the opinion that such a drastic fall has brought down the valuations of many companies to attractive
levels. The valuations of most of the leading large cap companies in the region seems undervalued and we believe
that the current market provides a good opportunity for value investors to build a portfolio of large cap stocks at
attractive levels.


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