Middle-Eastern Equity Analysis

July 14th to August 14th

An array of events following the COVID-19 Pandemic including extreme fluctuations in currencies, the Beirut port blast and political turmoil are just a few factors responsible for the underperforming Middle Eastern equities over the last month. The BIST 100 (Turkey) index was all reds over the last month plunging 8% and contrary to high-street predictions, the BLOM bourse (Lebanon) managed to stabilize relatively quickly after the tragic Beirut port blast, sinking ‘only’ by 4.12% over the last month. However, not all is lost for the Middle-eastern economies as the BB ESTERAD (Bahrain) index remained rather stable, the TA-35 (Israel) rose by a healthy 3.58%, and it was the Tadawul All Share index (Saudi Arabia) which turned out to fill the investors pockets, growing by 4.40%, with majority of its gains coming in early August.

Reflecting on the bright side, even though investors have been rather risk-averse with regards to the oil and gas industry, the Saudi Arabia’s gains can be largely attributed to Saudi Aramco which committed to pay-out $18.75 billion in dividends for the second quarter, matching its payout for the first three months of 2020. Although Saudi Aramco posted a 73% drop in profit for the second quarter, the fact that it has decided to stick to its pay-out plans while other major rivals including BP and Royal Dutch Shell slashed their dividends by roughly 50% (FT) majorly drove the Tadawul’s recent gains. Furthermore, the fact that foreign ownership on the Tadawul surged by $47.54 bn in merely a week also reflects the growing investors’ confidence in Saudi Arabia on a global level.

More often than not, numbers don’t lie. However, in the case of the TA-35 index, the 3.58% growth does not seem to present the full picture. A few weeks back, Israel’s Prime Minister Benjamin Netanyahu announced a ‘state of emergency’ due to the emergence of a second-wave of coronavirus cases, causing the TA-35 to tumble by 3.3%. To make matters worse, the prospect of a fourth back-to-back election in Israel is expected to wipe off all the short term gains as the cabinet continues to struggle with managing the recent surge of COVID-19 cases. One of the key reasons for the TA-35 staying in green is the Bank of Israel’s grant initiative of $1.9 bn targeted at giving individuals double the standard payment over the initial plan. However, the poor structuring of its grant initiative which provides a uniform amount of money irrespective of household’s economic status and the spiraling Israeli budget deficit which is projected to widen to 14% of its GDP by end of 2020, are both expected to further plunge the TA-35 in the forthcoming months. 

On the contrary, the BIST 100 index (Turkey) experienced an outflow of $566.5 million of equities in the first week of August; the largest in almost 15 months. This behaviour can be attributed to the Lira depreciating by a massive 6.3% against the U.S. Dollar. Subsequently, several foreign lenders were unable to meet their obligations as the cost of borrowing in Lira jumped for offshore investors. Consequently, this prompted foreign investors to sell their holdings in Turkey’s index majorly to raise funds and cover their prior commitments. Lastly, a Middle-Eastern equity analysis would surely be incomplete without discussing the Beirut port blast. The catastrophic incident plummeted the    BLOM-100 initially, however; the halt in trading along with the share prices of real-estate companies, particularly Solidere – the largest and most liquid company on the Lebanon bourse – rising by almost 13% managed to keep the index in check. However, these temporary gains are not predicted to sustain in the foreseeable future. The highly volatile Lebanese pound which has shrunk over 80% since October, political uncertainty reinforced by Prime Minister Hassan Diab resignation after merely seven months in office, and recent reports by Reuters highlighting the fact that Lebanese leaders were indeed aware of the explosives at the Beirut port are all likely to keep investors bearish, at least for the short-term.  

By Aayush khurana, Equity Analyst at The London Finance Journal

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  1. https://seekingalpha.com/news/3603875-beirut-bourse-slips-after-government-resignation-adds-to-uncertainty

  2. https://www.reuters.com/article/us-lebanon-security-blast/lebanese-government-quits-amid-fury-over-beirut-blast-idUSKCN2560XY

  3. https://www.bloombergquint.com/onweb/lebanon-s-biggest-stock-slumps-as-trading-resumes-in-beirut

  4. https://www.bloombergquint.com/onweb/israeli-shares-decline-most-on-political-concerns-inside-em

  5. https://www.bloombergquint.com/onweb/saudi-shares-lead-gulf-gains-with-2q-earnings-eyed-inside-em

  6. https://www.zawya.com/mena/en/markets/story/Foreign_ownership_on_Saudi_Tadawul_surges_to_4754bln_in_a_week-SNG_181742368/

  7. https://www.bloomberg.com/news/articles/2020-08-11/not-even-a-35-billion-turkey-stock-slump-can-deter-local-buyers

  8. https://www.bloomberg.com/news/articles/2020-08-13/foreigners-flee-turkish-stocks-at-fastest-pace-since-march-2019

  9. https://www.bloomberg.com/news/articles/2020-08-09/mideast-markets-trade-mixed-with-aramco-oil-eyed-inside-em

  10. https://www.bloomberg.com/news/articles/2020-07-15/world-s-youngest-emerging-market-sees-equity-dream-wither-away


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