(MENAFN- Gulf Times) Qatar will outperform its peers in the GCC region this year in view of its economic diversification, while Saudi Arabia will enter contraction in 2017 amid oil production cuts and spending rationalisation by the government, BMI Research has said in a report.
BMI's view is that the Gulf Cooperation Council economies will benefit from recovering oil prices this year and in 2018 after bottoming in 2016 alongside oil prices supporting rising investor and consumer confidence, and from ambitious economic diversification plans boosting the non-oil economy.
Despite widespread efforts across the GCC to diversify their economies away from their oil dependence, the Fitch Group company believes that economic activity in the region will remain heavily reliant on government revenues which, in turn, depend on oil prices.
The report also noted that coming from a 'low base for activity following a difficult couple of years in the Middle East due to the dramatic slump in crude oil prices, various political shockwaves, and a slowdown in economic growth conditions for an 'uptick in IPO issuance among the GCC economies are 'looking increasingly fertile once more.
In a world where the GCC states of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and the UAE are adjusting to a new oil prices environment, BMI highlights that there is a strengthening cocktail of tailwinds which, it believes will catalyse an uptick in first time share sales once more across the region.
These tailwinds include: firstly, the spike in privatisations as GCC governments look to boost their struggling state-owned enterprises (SOEs), which have seen their funding avenues dry up since the slump in oil prices began back in the second half of 2014.
Secondly, a steady albeit slow recovery in crude oil prices is forecasted; and thirdly, the broader emerging market growth story has seen money return into funds focused on the region once more, making local exchanges more liquid and tapping into the demand for stocks that still exists among the equity capital market investment community.
'In sum, there is plenty of cause of optimism in the GCC IPO arena at present, the report noted.
GCC IPO activity, it said, is on its way back, but deals remain small in size as issuers test out the IPO climate once more.
Indeed, the first half of 2017 enjoyed a marked increase from H1, 2016, with the volume of successful deals climbing to 13, compared with just three recorded during the first six months of last year. 'We highlight that within this uptick in activity, Q1, 2017 is responsible for the lion's share of deals (10, worth a combined $400mn), while activity tailed off once more in the second quarter with just three successful first-time share sales tapping equity capital management investors for a combined $171mn.
'This second-quarter disappointment after a promising first quarter is something that we attribute to the shockwaves caused by the diplomatic crisis in the GCC region, BMI said.
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