DUBAI — Arqaam Capital, the specialist emerging and frontier markets Investment Bank, on Monday inaugurated its fourth MENA Investors Conference in Dubai against the backdrop of an unprecedented level of change and structural reforms undertaken by governments in the region to ensure the long-term health of its economies, attract foreign investments and spur growth.

Speaking on the sidelines of the conference, Tarek Lotfy, President, GCC at Arqaam Capital, said: “We see macro risks in the GCC subsiding over the coming year as the bulk of required fiscal consolidation should now be behind us for the core of the GCC and as most of the oil producers in the GCC have been able to adjust to the lower oil price environment rather rapidly. The oil price, in our view, should now remain within the $50-55/bbl range as the shale oil producers have brought down their production breakeven points close to these levels meaning that any increase in price should be offset by a quick increase in supply, and we expect future prices to closely track spot markets as high cost producers need to hedge themselves.”

“Real GDP growth turned slightly negative in 2017 following the oil production cut, but is expected to pick up and turn positive again in 2018. It is important to note here that non-oil GDP growth has mostly held up well in these countries, despite lower oil revenues and increased fiscal austerity. This has been a positive surprise as economic growth in these countries had historically been mostly driven by incremental government spending,” he added

“We expect fiscal austerity to continue over the coming few years, but the pace should ease. Initial cuts have been focused on CapEx spending. That has now started to pick up again and we expect it to grow further over the coming years. On the other hand, the bulk of the fiscal consolidation should now come from an increase in non-oil revenues with a particular focus on the implementation of new taxes like the GCC-wide VAT and luxury goods taxes planned for the beginning of 2018, as well as the further removal of energy subsidies, albeit better targeted with governments announcing their plans well in advance of the subsidy reforms, and in some cases like in Saudi, coming up with measures to offset the impact on low income citizens through the provision of cash allowances. The budget deficit of KSA has already come down to 5.5% in the first half, and the country should remain well below its self imposed debt/GDP target of 30% by 2020,“ Lotfy explained.

Wafic Nsouli, Managing Director, Equities, Arqaam Capital, said: “Stock valuations in the region offer some scope for further improvement as expectations had been set too low, and corporate earnings have beaten the street by some margin in Q2. Valuations in the GCC remain compelling, with continued high equity risk premiums of c 700-1000bps for some stocks. Rising rates in the US have not led to an exodus of capital, and instead inflows in EM funds have continued, due to continued gradual tightening amid weaker US data and uncertainty around tax related fiscal stimulus,”

“Country classification changes should also be the key catalysts for the region. Saudi Arabia was added to MSCI’s watch list for inclusion into the EM Index this past June with a decision expected to be announced by June 2018 with implementation to begin in May 2019. A favorable announcement should be a major catalyst for the market as we could see up to USD 60bn in both passive and active money entering the Saudi market assuming that the announced Aramco IPO continues according to plan. The other key event is the FTSE September 2017 annual country classification review during which FTSE could choose to make a favorable announcement to include both Saudi Arabia and Kuwait into its EM index which should result in a combined total of $4.5bn in passive inflows (active flows are limited), another catalyst for the market,” he added

Over the two days of the conference, Arqaam will bring together the senior management teams of over 80 listed companies from across the Middle East and North Africa and more than 175 global investors for a series of high-value one-on-one and small group meetings. Participating companies are drawn from a wide array of sectors including financial services, telecommunications, industrials, utilities, materials, real estate and hospitality and healthcare and have a combined market capitalization of billions of dollars. — SG