Al Mal Capital says perception of risk in GCC is on wane, volatility to remain.
Investor perception of risk in GCC equities is on the wane, but profit taking means markets will be volatile in the near term, according to Al Mal Capital.
Following an increase in investor interest in Gulf markets since the beginning of February and a rebound in the beleaguered real estate, construction and banking sectors, Al Mal cut its equity risk premium on the region by 100 basis points.
The equity risk premium is the extra return investors demand in order to take on riskier investments.
“With GCC equity markets enjoying a buoyant four-month run, institutional investor interest has clearly returned,” a team of analysts wrote in a note to investors.
Higher trading volumes, oil prices trading around $70 per barrel and a return of liquidity to the system herald “a new phase of the investment cycle”, the Dubai-based investment bank said.
The number of shares traded on the Dubai Financial Market (DFM) rose 314 percent to 9.74bn in May from 2.35bn in December last year.
However, the bank cautioned that valuations may have run ahead of fundamentals and said the volatility seen in the last few trading sessions is likely to continue in the near term.
Stock markets’ performance in the period will be determined by the level of investor confidence, the price of oil, continued economic support by governments and the quality of earnings in the next few quarters, Al Mal said.