GCC corporate earnings poised to grow by 8.1%

GCC corporate earnings are expected to expand by 8.1 per cent for the full year in 2017, underpinned by stabilising oil prices and resilience in margins, a forecast by analysts said.
While political uncertainties and weaker economic growth in the backdrop of low oil prices have made it difficult to be bullish about the markets, corporate earnings of GCC-listed firms look stable this year, Nomura Asset Management Middle East said in the research note.
Going forward, the price of crude will be key for the region and its equity markets as it has implications on fiscal policy and the ability of governments to support their economies through what is expected to be a challenging period of transition and reform over the next few years, Tarek Fadlallah, chief executive at Nomura Asset Management Middle East said.
Analysts at Kuwait Financial Centre, or Markaz, said after posting a negative one per cent growth in the first half of 2017 compared to the same period last year, GCC corporates are on a track to expand their earnings by 8.1 per cent for the full year in 2017 based on stabilising oil prices and resilience in margins.
In the first half, Saudi Arabia, Bahrain and Kuwait were three countries to put up positive earnings performance growing by seven per cent, six per cent and two per cent respectively.
"Saudi Arabia's earnings growth was largely helped by the positive momentum in its non-oil private sector while Kuwait was largely helped by the positive performance in the commodities sector and its real estate sector," Markaz analysts said in a research note.
Lower oil prices continued to persist, despite the humongous efforts taken by the Opec to reduce the supply glut. Brent crude declined by 9.3 per cent in second quarter 2017 closing at $47.92 compared to $52.83 at the end of first quarter 2017, Markaz said.
Overall, IPE Brent crude has tumbled 15.7 per cent from the start of 2017 making it the worst performing first half for oil since 1998. Lower oil prices results in lower deposits being made into the banks and as result lowers credit being pumped into the economy. "As a result of this, banking sector earnings have declined by one per cent during the first half 2017 compared to the same period last year, analysts at Markaz said.
While Saudi Arabia witnessed a seven per cent increase in its overall earnings during the first half, largely prompted by the earnings increase in its commodities and telecommunications sector, UAE's overall earnings declined by two per cent. However, banks in the UAE managed to increased their earnings by one per cent while the other two major sectors of the economy - telecom and real estate posted seven per cent and 37 per cent decline in earnings.
Governments in the GCC, which is home to about a third of the world's proven oil reserves, rely heavily on the sale of hydrocarbons for revenues. A slump in oil price from the mid-2014 peak of $115 a barrel to the current level below $50 a barrel has lowered the overall economic growth and dented corporate earnings in the past two years, especially for the financial institutions, and firms operating in oil and gas and petrochemical sectors, Nomura Asset Management said.
The equity markets have also largely followed the oil price movements during the period.
Fadlallah said it for the third consecutive year that oil prices are averaging below $50 a barrel - comparable to the levels seen in 2004 when the regional economy was around half its current size. "The market is awash with contradictory data and the outlook is murky, to say the least, but it seems unlikely that oil will fall below $40 [a barrel] anytime soon and equally improbable that it will rally above $60."
Weaker oil prices have also forced the GCC governments to transform their economies and cut dependence on hydrocarbons while reducing subsidies and slashing public spending, said Fadlallah.
 
- issacjohn@khaleejtimes.com