During the course of this crisis, “money supply” has always been the magic villain and ironically the saviour. The past decade was market by unprecedented leveraging which eventually caused the imminent sub-prime crisis. Corporate and consumer de-leveraging sparked havoc in financial markets resulting in the end of prominent Wall Street names such as Bear Stearns & Lehman Brothers and severe ripple effects across the world. Keynesian economic policies came to save us (for now?) yet again, and governments across the world started pumping the much needed prescription: Money. Enough with the lecturing; lets look at GCC M2 numbers and discuss their implications:
It is evident that GCC M2 figures have stabilized. UAE M2 numbers have been on an upward trend since the end of March when M2 bottomed at AED 692.9B. M2 grew at 6.4% y-o-y in July reaching AED 730.3B. Is it great? No, but its LESS BAD and that’s all we need. Recently announced government initiatives such as lowering the interest rate on commercial banks’ liquidity support facilities, extending the maturity of loans to commercial banks from 1 week to 1 month, and using 11 banks for EIBOR could spur a more accelerated revival in UAE money supply.
Kuwaiti money supply figures have been surprisingly the most resilient of the group. The July M2 figures from Kuwait registered an impressive 18.7% yoy number on back of a stellar June 21.6% figure. Moving on to Qatari money supply, the rate of decline has seemingly bottomed and there is hope for upside from there. The picture in Saudi Arabia is no different.
The stabilization in M2 figures and expected upside from here suggest investors should go Long GCC banks. Afraid from a Moody’s downgrade on these banks? Don’t! I vividly remember when GE was downgraded and it only went up from that day. Saad and Gosaibi? Again, all these threats are potential catalysts because I believe they are already priced in.
I went back and looked at GCC equity market sector performance. SURPRISE SURPRISE: Banks have significantly lagged the market and underperformed. Let me share with you my findings of YTD Banking sector performance in the GCC:
- DUBAI: Banks -2.13% vs Index +16.99% UNDERPERFORMANCE: 19.12%
- KUWAIT: Banks +0.33% vs Index +14.66% UNDERPERFORMANCE: 14.33%
- SAUDI: Banks +8.46% vs Index +17.86% UNDERPERFORMANCE: 09.40%
- QATAR: Banks -0.41% vs Index +03.36% UNDERPERFORMANCE: 03.77%
According to the above table, I would go aggressively go Long banks in Dubai and Kuwait. Saudi is also worth noting. I am not very thrilled about Qatar especially since their banks have significantly outperformed other GCC banks and natural gas prices are down the drain. I guess the market now is all about rotating into different sectors, and I believe the musical chairs’ music will stop at GCC financials. Good luck!
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Loading ...Tags: abu dhabi, Banks, dubai, GCC Banks, GCC M2, GCC Money Supply, Kuwait, Long GCC Banks, M2, Money Supply, Qatar, Saudi Arabia
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