Weakened Euro and lower interest rates suggest upside for Eurozone equities, but with risk
GCC Governments to maintain ‘expansionary’ budgets despite continuing downward pressure on oil prices
Jeddah, Saudi Arabia – 24 May 2015: Alkhabeer Capital, a leading asset management and investment firm based in Saudi Arabia, and authorized by the Capital Market Authority (license number 07074-37), has released its markets update for the first quarter of 2015. The report considers micro and macro factors concerning the global and regional economies, with specific insight in asset classes such as equities, fixed income, currencies and commodities.

Global Macro and GCC View: Accommodative monetary policies from central banks suggest continuing weakness.

Twenty four central banks have eased fiscal policies since the start of 2015 by either lowering interest rates or printing new money, according to the report. Especially noteworthy however, is that of these twenty-four markets, seven are from the top ten global economies. This suggests a continuing softness in the global economy with little propensity for significant growth in the near term.

That said, the report highlights conflicting data which suggests a more positive outlook from zones previously under pressure. A weaker Euro has made the Eurozone more competitive and this, combined with the aggressive fiscal stimulus packages of the EU countries and low oil prices, suggests more cause for optimism. Two manifestations of this are that Eurozone business activity rose at its fastest pace in nearly four years and German consumer sentiment reached a thirteen year high in March.

Such mixed messages cause Alkhabeer Capital to predict continuing Dollar strength against key peers, although with some volatility.

Other global issues addressed by the report are a softening of the Chinese economy and the likely factors impacting sentiment in the coming months, such as the UK general election in May and the continuing negotiations between Greece and its Euro bloc partners.

Concluding on macro issues, Alkhabeer suggests Dollar strength and relative Euro weakness as a clear sign to curtail optimism for US equities, and consider increasing exposure to Eurozone equities, noting that the previously mentioned factors such as Greek debt negotiations, suggest being overweight EU is not without risk.

GCC: Lower oil prices are not curtailing pro-growth expenditure by Gulf governments
As Alkhabeer Capital had predicted in its recently released ‘Annual Outlook’, government spending is set to continue despite the sharp fall in oil prices. With the exception of Kuwait, where budgets have been slashed by a fifth, the governments of the GCC continue to spend, focusing more on ‘social’ investments in infrastructure, education and health. Kuwait’s relative underspend is attributed to familiar political paralysis.

Alkhabeer warns, however, of the fiscal pressures continually heightened spending will cause the exchequers of the GCC in the low oil price environment. A depletion of substantial asset and cash reserves is the only solution, with signs of this already evident from SAMA’s recent revelation that net foreign assets dwindled by 1.4% – the first such year-on-year drop since 2010. S&P downgrades for Oman and Bahrain further support this hypothesis, as does the projected $38.6 billion deficit predicted in the 2015 Saudi budget. Clearly, continuing downward pressure on oil prices will add to those challenges, as will military conflict in Yemen. Despite this, KSA, Qatar and the UAE have the fiscal buffers to offer an adequate cushion, at least in the near term.