Global recessionary fears have compelled many normally very reliable investors to begin to worry about depleting asset values right across investment classes, where many equities pose a prime concern for the current markets. We have seen many long term, high performing financial giants being forcibly removed from the face of the financial world, despite being perceived as the lords among the investment community. The impact of the financial crisis in the Middle East varied significantly from one economy to the next. Surprisingly early impact was visible in countries with strong links to the wider, global financial markets.
The negative impact started spreading to what were recognised as relatively well protected regional economies during the second half of last year – with commodity prices, especially oil prices, crashing to multi year lows from record highs. Oil dependent economies took a great deal of the toll with their equity indices falling by around 40-50 percent, on average. Stock indices in oil rich Gulf Cooperation Council (GCC) countries saw declines of between 30-60 percent in the last quarter of 2008 alone. In response, we have seen policy makers from across the world proposing various different qualities and quantities of monetary or fiscal stimulus plans to maintain liquidity and support their economies and stock markets.
All of these concerns and opportunities lead to one overarching question of fundamental importance: Where should fund managers deliver returns in order to make the most of the situation, effectively minimising risk?
United Securities, a leading financial powerhouse, told World Finance that the answer to this million dollar question lies in the ability to extend ties within the regional equities markets.
According to Mustafa Ahmed Salman, CEO of United Securities “GCC equities, at this stage, offer the right investment asset class opportunities at the cheapest price ever.” This may ring false to many commentators and investors alike, who, granted, would be right in assuming that the GCC story is all about oil prices, which of course at this point in time are heading for record lows.
But there are many more unexplored opportunities and areas of potential within and across GCC markets.
Oil revenue, budget deficit, growth
A basic concern arises when we think of oil as the prime generator of revenue for many GCC states. Given the dependency on oil revenue, other infrastructure and development activities undertaken in the region move in tandem with average oil price realisation for many of these economies. The sharp and rapid deterioration in oil prices since last summer put an end to the latest GCC oil boom, that dates back to early 2003. Oil prices plummeted by more than two thirds from the lofty peaks recorded last July. This drop over the following six months washed away all the gains attained over the previous 30 month period for crude oil. The recession in the world economy, mainly in the more advanced countries, will inevitably continue throughout 2009, leaving less room for any significant short-term recovery in oil prices. To defend oil prices and secure their oil revenue streams, OPEC members have cut the cartel’s production by around 4.2 million barrels per day (mbpd), since last September.
Rising oil revenues over recent years have enabled GCC countries to achieve record surpluses in their government budgets, and add to their holdings of foreign assets. Combined budget finances of GCC countries moved from a deficit of around $7.4bn in 2002, to an estimated surplus of $220bn in 2008 (21 percent of GDP). These surpluses were achieved despite large increases in governmental expenditures.
The 2009 anticipated combined deficit in GCC budgets is considered modest (around $16bn) if compared to the size of accumulated surpluses around $2trn over the previous seven years.
The most important thing is that unlike the oil boom in the 1980s, GCC governments are exercising more discretion and flexibility in determining the appropriate levels of expenditure. At the beginning of the last oil boom, GCC governments saved most of their surpluses. There is a strong belief that government spending will continue, though at a slower pace. Oman announced a 10.8 percent increase in spending in 2009 compared to the 18.6 percent increase budgeted in the previous year. Similarly, the UAE’s 2009 budget shows a 9.2 percent increase in expenditures compared to 31 percent in the previous year.
Mr Hassan Ali Jawad, MD of United Securities, says he expects oil prices to recover towards the last quarter of 2009, as the ongoing stimulus and liquidity injection by governments regionally and worldwide would start boosting investors’ confidence and increase economic activity. Prices will also benefit from the recent cuts in OPEC supply which might cause a short term supply crunch. Futures markets suggest that OPEC crude prices are expected to reach around $70 per barrel in 2010, which significantly exceeds the costs of oil production in GCC countries and the breakeven prices that would balance their budgets.
Consequently, most Gulf countries are expected to see surpluses in their budgets next year, compensating for any deficits incurred in the current year. Overall, there are high expectations that investment activities will continue to develop, albeit at a slightly slower pace than would usually be expected.
With the potential for various opportunities lying ahead in the almost-immediate future, the need for a tried and tested financial advisor in the region is of utmost importance, particularly in order to get the timing right. United Securities, one of the leading financial powerhouses in the Middle East, has been serving clients across the globe for the last two decades. With headquarters in Muscat, Sultanate of Oman, United Securities is one of the leading financial intermediaries operating in the Middle East and North African (MENA) capital markets. It provides investment consultancy and brokerage services in the MENA equity markets, asset management, corporate finance, and equity research. It is a fully licensed company that provides a wide range of financial services to local, regional and international clients with discretionary assets under management in excess of $120m.
United Securities finds its strength in a team of young, talented, and confident individuals. Highly qualified professionals carry out different functions under the guidance of highly experienced and well informed promoters, Mustafa Ahmed Salman and Hassan Ali Jawad. The flexibility of the company in changing its strategy according to situations and the adaptability in implementing those strategies had helped it in withering the crisis with ease. It maintains its commitment to providing the highest standards of financial services to its clients. The research reports from United Securities command a great degree of respect among the investment community in many MENA markets. The research strategy is built upon years of experience and testing which have helped to understand the regional markets and functions.
Regional brokerage division
Through its subsidiary companies in Egypt and Saudi Arabia, and a number of well established professional associates spread across the region, United Securities is extending its MENA capital markets brokerage services to a large number of institutional as well as retail clients.
The firm’s associations with big names in the region, such as Damac Investments, Al Rajhi Group of Saudi Arabia and Shuaa capital of the UAE, provide their customers with much needed confidence in dealing with them.
Focus on a customer-first attitude, ethical and transparent business practices, respect for professionalism, research based value investing, and technological innovation has enabled the company to blossom into the broker of choice in this well established and highly regarded region of the world.
Global services
The firm believe that diversification is all about correlation and not the number of assets one has at hand. Relying on this as one of the major strategic pillars, United Securities has spread its wings to expand well beyond the region. The company is licensed to act as a direct Foreign Institutional Investor (FII) in the Indian Capital Markets. It is registered as a Foreign Institutional Investor with the Securities and Exchange Board of India, the apex regulatory body for investments in the Indian securities market. It offers different kinds of investment platforms to its customers through sub accounts, as well as trading accounts, for investing in the Indian Stock Markets.
As part of their recent ambitious growth, they recently extended many of their services by enabling clients to invest in the US financial markets as well. They have tied up plans with globally recognised names for dealing in the US markets. Investors can now create partnerships with the company for their investment needs in the western hemisphere, spreading their opportunities worldwide.
United Securities believe that the economic expansion of GCC countries is here to stay for longer time period. The governments are keen on developing the region as a key financial, tourism and investment destination in the MENA region. Increased spending of the governments towards achieving this goal is expected to keep corporate profits in the growth trajectory. Historically positive fiscal balances accrued from higher oil prices is the most supportive factor, whilst the diversification of revenue streams are expected to support consistent GDP growth.
They are well known for believing in informed investment decision making and therefore keep investors informed about the market, as well as the economy in general, by producing Macro as well as Micro economic reports, with sector as well as company specific reports. These reports enable the client to keep updated and take appropriate decisions in good time. They are available in global information vendors such as Bloomberg, Reuters as well as CapitalIQ.
