Kuwait Financial Centre “Markaz” R E S E A R C H

Markets Mostly Up in March GCC Outperforms

March 2012 Returns1 (%)

S&P 500 MSCI World MSCI EM S&P GCC

2.9 1.1 -3.3 4.6

The World broad index edged up 1.1% in March mainly due to continued strength from Japan. The Nikkei 225 gained another 3.8% after surging

10.5% in February. Losses were seen across Emerging Markets and Asia;

Shanghai lost the most with a decline of 7% while Europe was flat.

The US is taking a cautiously optimistic view of the recovery and how sustainable it will prove to be; Chairman of the Fed recently hinted that

further easing is not off the table should the job market not continue improving. US GDP growth in the first quarter of the year is expected to be

around 2% ann.

China downgraded its 2012 GDP forecast to 7.5% (from 8%), citing an aim

towards steady, sustainable growth based on domestic consumption rather than exports.

GCC markets were up again in March, gaining 4.6% after surging 7.4% in February. Gains were led, for the third consecutive month, by Saudi Arabia,

which was up 8.39% for the month while Kuwait’s Weighted Index gained 2.61%. Losses were seen in the UAE, with Abu Dhabi and Dubai declining

1.69% and 2.73%, respectively, while Oman was down 2%.

Volume was up 11% in the GCC while Value Traded expanded 40% to USD

90bn; liquidity was led by Saudi Arabia where monthly value traded was up 46% to USD81.6bn.

Risk in the GCC (as measured by the Markaz Volatility Index – MVX) was up

11% in March, but was up 2x in 1Q11. Risk in Saudi was up 26% for the

month while MVX Kuwait shed 38%.

Valuations have remained in a steady range as markets trade sideways with most countries in the 10x-15x range.

1 All March Returns are calculated from the 28th of March 2012, closing values

April 2012

Research Highlights:

Review of global and regional stock markets for the previous

month

Markaz Research is available on

Bloomberg - Type “MRKZ” <Go>

Thomson Research, Reuters Knowledge

Nooz Zawya Investor

ISI Emerging markets Capital IQ

FactSet Research Connect

TheMarkets.com

M.R. Raghu CFA, FRM

Head of Research +965 2224 8280

rmandagolathur@markaz.com

Layla Jasem Al-Ammar

Assistant Manager +965 2224 8281

Lammar@markaz.com

Kuwait Financial Centre

S.A.K. “Markaz”

P.O. Box 23444, Safat 13095, Kuwait

Tel: +965 2224 8000

Fax: +965 2242 5828 markaz.com

R E S E A R C H March 2012

Kuwait Financial Centre “Markaz”

2

Global Markets Review – March 2012

World markets were mixed due to tentative economic signals. Crude oil

edged up 1.15% to $124.07/bbl as Iran tension continued, CRB Commodity index was also up 1.67% while CBOE Vix tumbled 16%.

The World broad index edged up 1.1% in March mainly due to continued strength from Japan (Figure 1). The Nikkei 225 gained another 3.8% after

surging 10.5% in February. Losses were seen across Emerging Markets and Asia; Shanghai lost the most with a decline of 7% while Europe was flat.

Figure 1: Monthly Returns – March 2012 (%)

On a YTD basis, Nikkei rules the bunch with a gain of 19% followed by MSCI EM which is up 14% for the year so far. The FTSE 100, Frontier

Markets and Shanghai are in low single digit returns.

Figure 1: Price Returns – YTD (%)

The World broad index edged up 1.1% in March mainly due

to continued strength from Japan

On a YTD basis, Nikkei rules

the bunch with a gain of 19%

Monthly returns were negative across the board

R E S E A R C H March 2012

Kuwait Financial Centre “Markaz”

3

World

The US is taking a cautiously optimistic view of the recovery and how

sustainable it will prove to be; Chairman of the Fed recently hinted that further easing is not off the table should the job market not continue

improving. According to the CASE Shiller Index, housing prices in the US continue to fall while the NAHB Housing Market Index was flat for the

month. Consequently, US GDP growth in the first quarter of the year is

expected to be in the neighborhood of 2% ann.

The Euro area has been quiet following the extension of funding from the ECB; lending on the continent remains subdued with claims on non-financial

businesses flat in February while claims on the government have soared

13% in the same period. Manufacturing data was down slightly in the first quarter of the year across Germany and France. However, the

unemployment rate in Germany fell to a two-decade low of 6.7%.

China downgraded its 2012 GDP forecast to 7.5% (from 8%), citing an aim towards steady, sustainable growth based on domestic consumption rather

than exports.

Chart Pack – Global Markets

Figure: 3 – Capital Flows to Emerging Economies Figure: 4 - Feds Fund Target Rate

Figure: 5 - US Dollar Figure: 6 -Housing Market Index

Unemployment rate in

Germany fell to a two-decade low of 6.7%

Monthly returns were negative

across the board

R E S E A R C H March 2012

Kuwait Financial Centre “Markaz”

4

Figure: 7 - US Unemployment rate (Seasonally Adj) Figure: 8 - Crude Brent Oil Prices

Figure: 9 - TED Spread Figure: 10 - CBOE VIX

Figure: 11 - CRB Commodity Index

R E S E A R C H March 2012

Kuwait Financial Centre “Markaz”

5

GCC Markets Review – March 2012 GCC markets were up again in March, gaining 4.6% after surging 7.4% in

February. Gains were led, for the third consecutive month, by Saudi Arabia, which was up 8.39% for the month while Kuwait’s Weighted Index gained

2.61%. Losses were seen in the UAE, with Abu Dhabi and Dubai declining

1.69% and 2.73%, respectively, while Oman was down 2%.

Table: 1 - Market Indicators

Indicators M. Cap

(USD Bn) Last Close Monthly

Return % YTD % 2011% P/E TTM

Saudi (TASI) 408 7,783 8.39 21.27 -3.07 14

Kuwait SE WT.INDEX 107 420 2.61 3.57 -16.89 14

Qatar(Doha SM) 99 8,790 0.49 0.13 1.12 10

Abu Dhabi (ADI) 76 2,567 -1.69 6.85 -11.68 8

Dubai (DFMGI) 52 1,683 -2.73 24.37 -17.00 11

Bahrain (BAX) 17 1,150 0.15 0.59 -20.15 8

Oman(Muscat SM) 14 5,721 -2.01 0.45 -15.69 13

S&P GCC Composite Index 264 105 4.65 14.26 -8.47 13

Source: Excerpt from Markaz ‘Daily Morning Brief’ March 29th , 2012

GCC banks could face a funding gap as European banks sharply deleverage

their holdings in local banks. Moody’s has stated that a decrease in lending

by European banks could cause short-term tightening in liquidity in addition to a “longer-term structural shortfall”. According to the agency, European

bank lending to GCC banks totals approximately $237 bn; furthermore, Moody’s expects this deleveraging to be detrimental to the GCC “at a time

when the region faces sizable funding requirements, with an estimated $1.8

trillion of capital investments underway or planned over the next 15 years.”

Saudi Arabia

The Saudi oil Minister aimed to allay oil price concerns during the month,

stating that there is adequate supply should exports from Iran halt; the minister expects production in March/April to be at roughly 9.9mn b/day.

Money Supply (M3) in the kingdom grew 14% YoY in February while

lending to the private sector was up 12% YoY in the same month.

The Public Pension Agency divested itself of its 5% holding in Zain Saudi as

the firm struggles with balance sheet restructuring plans. Zain Saudi was downgraded to ‘Underweight’ from ‘Neutral’ by NCB, citing frequent

management turnover and high competition. Zain Saudi stock surged 36% for the month.

Kingdom Holding has received shareholder approval to sell up to $1bn in bonds in its first public debt issuance. Kingdom Holding surged 13%

for the month.

Saudi Electricity Company launched a $1.75bn Sukuk in two tranches; a five-year tranche worth $500mn and a ten-year tranche worth $1.25bn. The

debt issue is part of SEC’s larger aim of capital spending at about $10bn a

year over the next five years. The stock was up 12% for the month.

GCC markets rallied in

February, up 7.4% and pushing the YTD gain to 9%

GCC banks could face a

funding gap as European

banks sharply deleverage their holdings in local banks

R E S E A R C H March 2012

Kuwait Financial Centre “Markaz”

6

United Arab Emirates

Qatar’s Mannai Group and EFG-Hermes are making a cash bid to takeover

Dubai’s Damas Jewelry in a deal that would value the firm’s capital at around $445mn.

Bank lending in the UAE averaged about 3.5% during the year while

provisions were up 7% to $4.3bn.

Emaar Properties saw its villa sales and sales of commercial units and land

plots double in 2011 while apartment sales tumbled 85%. The stock shed 2% for the month.

Kuwait

The World Bank warned that government spending patterns are unsustainable, thereby risking economic development plans. The Bank said

that crude oil prices could fall by about 10%-15% by 2020 which would place an enormous strain on fiscal budgets.

Kuwait’s 2012-2013 draft fiscal budget expects a deficit of $28.7bn, with a 13% rise in spending to $80bn while Revenues are expected at $51bn. The

Finance Minister warned that increases in the deficit could force the government to take extreme steps such as “devaluing the Dinar to lower

the real cost of wages, liquidating public assets and withdrawing from

national reserves” to fund it.

Kuwait Finance & Investment Company (KFIC) bondholders have agreed to reschedule debt of $77mn; the bond was issued in 2005 and is expected to

mature this year.

Kuwait's Aref Energy Holding said it has received a $25mn offer for

acquisition of its entire 64.25% stake in Sudan's Higleig Petroleum Services and Investment Co. Aref Energy stock was up 3.7%.

Kuwait Finance House (KFH) is expected to sell, merge or restructure

unprofitable assets and subsidiaries. KFH’s 2011 net income was down 24%

in 2011 due to provisions. The stock was down 5% in March.

Qatar

Qatar signed deals valued at over $2bn for the New Doha Port project with

contracts expected to be awarded in the second and fourth quarters of 2012.

The Qatar Stock Exchange announced the launching of two new indices in

April; the first is a Total Return index which factors in dividend distributions while the other is a revised sector index.

Qtel announced a 40% Rights Issue targeted at just under $2bn to fund future investments and expansion plans for the telecom operator, including

investments in 4G and Fiber Optic technology. The firm is also looking to acquire 19% of Iraq’s Asiacell. The stock has shed 17% for the month.

The Qatar Stock Exchange

announced the launching of two new indices in April

Volume was up 11% in the

GCC while Value Traded expanded 40% to USD 90bn

R E S E A R C H March 2012

Kuwait Financial Centre “Markaz”

7

Liquidity, Risk & Valuation

Volume was up 11% in the GCC while Value Traded expanded 40% to USD

90bn; liquidity was led by Saudi Arabia where monthly value traded was up 46% to USD81.6bn.

Risk in the GCC (as measured by the Markaz Volatility Index – MVX) was up

11% in March, but was up 2x in 1Q11. Risk in Saudi was up 26% for the

month while MVX Kuwait shed 38%.

Valuations have remained in a steady range as markets trade sideways with most countries in the 10x-15x range.

Chart Pack – GCC

Figure: 12 – Saudi Arabia – PE Band Figure: 13 – Dubai – PE Band

Source: Thomson DataStream Source: MSCI, Thomson DataStream

Figure: 14 – Abu Dhabi – PE Band Figure: 15 - Qatar – PE Band

Source: MSCI, Thomson DataStream Source: MSCI, Thomson DataStream Figure: 16 - Oman – PE Band Figure: 17 - Bahrain – PE Band

Source: MSCI, Thomson DataStream Source: MSCI, Thomson DataStream

R E S E A R C H March 2012

Kuwait Financial Centre “Markaz”

8

Figure: 18 – Average Daily Value Traded (USD mn)

Figure: 20 - Risk & Return (June 2005 – Mar 2012) – GCC Vs Developed & EM

Figure: 21 – Comparative MVX Levels – March 2012

Source: MVX is a proprietary volatility index developed by Markaz Research Note: Base data for MVX GCC has been changed from MSCI GCC to S&P GCC Index.

R E S E A R C H March 2012

Kuwait Financial Centre “Markaz”

9

Figure: 22 – US Dollar Returns on GCC Markets

Figure: 23 - Saudi Arabia Repo Rate Figure: 24 - Kuwait Rates

Source: Reuters Eikon Source: Reuters Eikon

Figure 25: Dubai CDS 5 yr

R E S E A R C H March 2012

Kuwait Financial Centre “Markaz”

10

Data Tables – GCC Data Table: 1 - Value & Volume Traded Indicators

Volume Parameters Value Parameters

% of Volume Traded

% of Value

Traded

Volume Traded (Mn)

LTM Avg Volume Traded (Mn)

Value Traded

(USD Mn)

LTM Avg Value

Traded (USD Mn)

MoM Deviation

(%)

MoM Deviation

(%)

41% 91% Saudi Arabia 14,343 5,600 55% 81,591 33,421 46%

29% 4% Kuwait 10,054 4,502 -13% 3,275 1,935 -1%

28% 4% UAE 9,800 4,334 -4% 3,297 1,490 4%

1% 2% Qatar 209 164 63% 1,672 1,605 9%

1% 0% Oman 420 189 91% 273 173 20%

0% 0% Bahrain 55 45 23% 28 23 38%

Total GCC 34,881 14,835 11% 90,136 38,647 40%

Source: Markaz Research

Data Table: 2 - Value traded (USD Bn)

2004 2005 2006 2007 2008 2009 2010 2011 2012

Saudi (TASI) 473 1103 1403 682 522 338 202 291 179

Kuwait (KSE) 51 97 60 131 134 75 44 22 8.74

Abu Dhabi (ADX) 4 29 19 48 83 19 9 6.7 1.94

Dubai (DFM) 14 110 95 103 63 48 19 8.7 5.51

Qatar (DSM) 6 28 21 30 47 26 19 22.7 4.59

Oman (MSM) 2 3 2 5 9 6 3 2.5 0.68

Bahrain (BAX) 0.4 0.6 1.4 0.9 2.2 0.48 0.29 0.3 0.06

Total 550 1371 1601 1000 860 512 296 354 201

Source: Zawya

Data Table: 3 - Blue Chips Performance

Companies

M.Cap (USD Bn)

Last Close

Monthly Change

2011 Change P/E TTM

4Q 2011 Earnings

YTD PAT (YoY Growth)

Saudi Arabia (SAR)

SABIC 86 107.5 5.9 12 -8 11 5,266 -8

Al-Rajhi Bank 33 82.5 4.4 19 -16 17 1,899 14

Saudi Telecom 22 40.4 5.8 20 -21 10 2,337 2

Saudi Electricity Co. 18 15.8 11.7 14 -1 30 -522 NM

Samba Fin. Group 13 56.0 7.2 20 -24 12 943 5

United Arab Emirates (AED)

ETISALAT 20 9.1 -4.0 0 -15 12 704 -65

NBAD 9 8.7 -23.6 -20 12 9 724 -1

First Gulf Bank 8 9.7 -51.9 -37 -11 8 1,022 18

Emirates NBD 5 3.1 -8.3 5 7 7 2,531 523

Emaar Properties 5 3.1 -2.2 20 -28 11 717 162

Kuwait (KWD)

ZAIN 13 0.9 2.4 -3 -41 13 75 -14

NBK 17 1.1 -6.9 -4 -14 15 77 -0

KFH 8 0.8 -4.9 -13 -16 28 10 10

Gulf Bank 4 0.5 -7.2 -12 -11 38 31 252

Comm. Bk. Kuwait 4 0.8 11.3 0 -14 NM -7 NM

Qatar (QAR)

Industries Qatar 21 140.5 -0.4 6 6 10 1,686 19

QNB 26 135.0 0.7 -2 -3 11 2,092 35

Ezdan Real Est. Co. 15 20.0 5.3 -10 -14 NM 144 NM

Q-TEL 8 134.8 -17.5 -4 16 12 603 33

Comr’cial Bk of Qatar 5 76.7 -0.4 -9 -8 10 379 23

*3Q11 Source: Excerpt from Markaz Daily Morning Brief

R E S E A R C H March 2012

R E S E A R C H March 2012

Disclaimer

This report has been prepared and issued by Kuwait Financial Centre S.A.K (Markaz), which is regulated by

the Central Bank of Kuwait. The report is owned by Markaz and is privileged and proprietary and is subject

to copyrights. Sale of any copies of this report is strictly prohibited. This report cannot be quoted without the prior written consent of Markaz. Any user after obtaining Markaz permission to use this report must clearly

mention the source as “Markaz “.This Report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial

instruments or to participate in any particular trading strategy in any jurisdiction. The information and

statistical data herein have been obtained from sources we believe to be reliable but in no way are warranted by us as to its accuracy or completeness. Markaz has no obligation to update, modify or amend

this report.

This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors are urged to seek financial advice

regarding the appropriateness of investing in any securities or investment strategies discussed or

recommended in this report and to understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each

security’s price or value may rise or fall. Investors should be able and willing to accept a total or partial loss of their investment. Accordingly, investors may receive back less than originally invested. Past performance

is historical and is not necessarily indicative of future performance.

Kuwait Financial Centre S.A.K (Markaz) does and seeks to do business, including investment banking deals,

with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. For further information, please contact ‘Markaz’ at P.O. Box 23444, Safat 13095, Kuwait. Tel: 00965 1804800 Fax: 00965 22450647. Email: research@markaz.com