QNB is maintaining a positive outlook for the GCC region, with a growth forecast of 4-4.5% for 2015 in its “investment outlook” released recently.
Saudi Arabia’s purchasing managers index (PMI) fell to 57 in May on weaker growth in output and new business. However, the index showed another robust expansion in the Saudi private non-oil sector, it said.
At the same time, the UAE’s PMI was little changed in May (56.4), QNB said.
The US economy contracted in Q1, 2015, but the latest data suggest that the weakness is confined to the first quarter (Q1).
The Euro area recovery is continuing into Q2 supported by lower oil prices, a weaker euro, a fading fiscal drag and improving credit channels. Monetary and fiscal support in China is starting to impact the economy. Emerging markets (EMs) are slowing, except India, which enjoyed strong capital inflows in Q1, QNB said.
Growth in the GCC and Sub-Sahara Africa (SSA) is expected to remain strong despite lower commodity price, QNB said.
The recovery of the oil price and the massive liquidity were the main reasons behind the recovery of the GCC Equity market, QNB said and added it hence remained “neutral”.
“We believe the Large buffers and available financial reserves should allow most of GCC countries to avoid sharp cuts in government spending, limiting the impact on near-term growth, which would result in a positive reflection on the stock markets of this countries. We believe GCC markets are oversold and the valuation is being attractive for some of these markets and there will be strong inflow in markets like Saudi Arabia, which is the biggest regional market,” QNB said.
On commodities, QNB said, “We remain neutral on a 3-month basis, and we downgrade to underweight on a 12-month. We expect a decrease in the oil price before a proper recovery, as the price is high relative to current and forecast fundamentals: 1) US producer response has been large, we believe it remains short of the slowdown required and will reverse at the current price, 2) the reaction of non-Opec producers remains null and low-cost producers such as Saudi Arabia, Iraq and Russia are on track to grow production sharply, 3) access to equity and debt capital markets is already back to being open.
“A lower oil price and stronger dollar are driving cost deflation across the commodity complex, as energy is a large share of operating costs.”