Monthly Insights - Emirates NBD€¦ · Head of Fixed Income Research 10.0 8.0. Monthly Insights...

Monthly 18 February 2015

Monthly Insights Worries about global growth, which we thought were exaggerated, appear to have lifted as commodity prices have stabilized and recent economic data has shown improvements. However, oil price concerns have been replaced by worries about Greece, but the markets are still not pricing what might be at stake. Global macro: The start of the year was characterized by concerns about global

growth, in part driven by weakness in commodity markets and in particular oil. A month on and with the oil price having recovered a little, this is helping to reassure markets that this gloomy prognosis may well have been misplaced.

GCC macro: This month we focus on developments in Saudi Arabia. Lower oil prices have continued to weigh on sentiment and budget revenues, but the authorities have stuck to their policy of fighting for market share in global oil markets. The new King also announced a substantial spending package which should support domestic demand. Financing the budget deficit this year will likely involve both drawing down fiscal reserves and increasing domestic borrowing. .

MENA macro: Four years after the start of the Arab Spring, the outlook for MENA’s net oil importers is finally turning a corner. In comparison to other emerging markets, both within the Middle East and further afield, the economies of North Africa and the Levant look relatively well positioned to withstand many of the external headwinds buffeting the global economic and financial market landscape.

Fixed Income: The Greek debt issue has failed to translate into material price movements in the fixed income market. Instead, the return of risk appetite seem more linked to stabilizing oil prices. The lack of negative news from the US and UK, coupled with various forms of QE from ECB, BoJ and China have helped credit markets rise and most safe haven assets fall back during the month.

Currencies: The dollar has seen strong gains over the last month driven by a reappraisal of Fed tightening prospects as well as by pronounced weakness of the EUR following the ECB’s decision to launch a massive QE program.

Equities: The start to 2015 has been marked by apparent contradictions with both the bond market and equity markets trading near all-time highs, even against a backdrop of game-changing events that have included massive ECB QE and an increased probability of ‘Grexit’.

Markets appear too sanguine about ‘Grexit’ risks

Source: Bloomberg, Emirates NBD Research

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Tim Fox Head of Research & Chief Economist +971 4 230 7800 [email protected] Khatija Haque Head of MENA Research +971 4 230 7803 [email protected] Anita Yadav Head of Fixed Income Research +971 4 230 7630 [email protected] Jean-Paul Pigat Senior Economist +971 4 230 7807 [email protected] Aditya Pugalia Analyst +971 4 230 7802 [email protected]

Content

Global Macro ......................................................................................................... Page 3

GCC Macro ............................................................................................................ Page 5

Non-GCC Macro ................................................................................................... Page 7

Fixed Income ....................................................................................................... Page 9

Currencies .......................................................................................................... Page 11

Equities .............................................................................................................. Page 13

Key Data & Forecast Tables .............................................................................. Page 15

Global Macro The start of the year was characterized by concerns about global growth, in part driven by weakness in commodity markets and in particular oil. We expressed surprise a month ago that the oil price tail was effectively being allowed to wag the dog, as if the oil price weakness portended something ominous for the world economy. A month on and with the oil price having recovered a little, this is helping to reassure markets that this gloomy prognosis may well have been misplaced. Indeed key economic reports released over the last month have shown greater resilience than many had expected, providing support to our view that the outlook is better than many have assumed.

Central banks provide more stimulus This optimism is all the more warranted after more central banks have continued to ease policy in those countries seen as most at risk of slowing down, and in some cases at risk of tipping into deflation. The most striking example was clearly the ECB which launched a EUR1.1 trillion program of Quantitative Easing (QE), beginning in March and running all the way until September 2016. Ironically the ECB’s move has actually coincided with a slight upturn in economic activity in the single currency area, with GDP growth in Q414 rising by 0.3% q/q which was more than expected, and with Germany and Spain actually expanding by 0.7%. Other more recent and contemporaneous data has shown that this improvement also carried over into January, with PMI composite activity indices showing improved momentum in both manufacturing and service sectors, and with retail sales also benefiting from softer oil prices. This improving picture is fairly consistent with our overall outlook for the year, which sees low oil prices, a weak Euro and expansionary monetary policy as likely to generate stronger growth in the euro area, with our forecast being for growth of 1.5% in 2015 up from 0.9% in 2014. However, deflationary risks have clearly intensified as demonstrated by the Eurozone’s -0.6% inflation reading in January, and the 0.6% core rate, which was after all the main rationale for the resort to QE. Furthermore, our outlook is also conditional on the stand-off in Greece being resolved successfully, between its new government and its official creditors, something which as of now remains highly uncertain. Clearly the possibility of a chaotic Greek exit from the Euro (or Grexit), would have consequences for other Eurozone members, as well as generalized impact on sentiment and confidence in the Euro area. At this stage, with discussions still ongoing it is quite hard to estimate such scenarios, but it could clearly be a substantial one depending on how chaotic such an event turns out to be. Other central banks have also taken steps to ward off incipient growth or deflation risks, including Switzerland, Canada, Australia, Denmark, Sweden, Singapore and China. Some of these steps were triggered by currency pressures, as with the SNB’s dropping of its EUR/CHF peg which happened a month ago in order to pre-empt the impact of the ECB’s launch of QE. Denmark’s defense of its peg to the EUR has also necessitated an aggressive rate

response, whereas other rate cuts have been driven by more generalized risks to growth and inflation. Elsewhere in emerging markets the trend is also towards lower policy rates, with India also set to reduce interest rates further following the budget on the 28th of this month.

Central banks go negative


….As Fed prepares to tighten That this is occurring as the Fed continues to make plans to raise interest rates in the middle of the year should not be viewed as disconcerting or inconsistent. The US economy is now seeing the benefit of many years of QE (in contrast to the Eurozone), as evidenced by the accumulating strength of the labour market. US Payroll growth averaged 324k in the last quarter of 2014, up from 237k in Q3, and 193k in Q1 2014, with the US economy adding nearly 3 million jobs in 2014 as a whole. The unemployment rate has also fallen from 6.6% at the start of 2014 to 5.7% today, and is now sitting on the cusp of the Fed’s long-term estimate of where the natural rate is.

US jobs growth remains impressive

Source: Bloomberg, Emirates NBD Research There does appear to have been a slight softening in US activity at the turn of the year, as shown by January retail sales which even

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after the negative gasoline price impact showed no growth in underlying sales. Nonetheless consumer confidence remains high overall (the Michigan Sentiment index stood at 93.6 in February, down only slightly from 98.1 in December), and continued jobs growth should eventually recharge consumption, especially as oil prices remain subdued. As such we are still viewing a June Fed rate hike as the most likely, especially after average hourly earnings rose by 0.5% in January, following a surprise -0.2% drop in December. Wages growth has been the missing link in the labour market recovery until now, but with these now pushing up to 2.2% y/y in January, this could be the key for the Fed to start hiking as we have been expecting. Market expectations for Fed tightening had been pushed out to Q4 recently, but these are now also being reined back in to June, allowing bond yields to also start turning higher. Bank of England - something for everyone The Bank of England’s position also contrasts with the experience of other central banks in being more inclined to tighten monetary policy, although it is likely to be at least one step behind the Fed, and maybe two. The main point of the latest Quarterly Inflation Report released by the Bank was that negative inflation in coming months would likely be temporary due to weak oil prices, but the next move in interest rates is likely to be up. In the MPC minutes of the February meeting, the Bank even saw CPI rising ‘fairly sharply’ after the oil effect fades. At the same time, however, the Bank of England Governor also removed the 0.5% minimum band for interest rates and indicated that he would consider setting negative interest rates if necessary. As such the messages from the Bank continues to be quite confusing, effectively giving something to everyone, perhaps even adding further to Carney’s growing reputation for misleading the markets. Japan’s struggle continues Finally Japan is clearly still struggling to turn the corner on creating sustainable growth, even though the recession of 2014 finally came to an end in Q4. Japan recorded growth of 0.6% q/q in Q414, up from a downward revised -0.6% in Q3 and less than the market had been expecting. The annualized rate came in at 2.2%, much less than the median forecast of 3.7%. The data highlights the challenge faced by PM Abe in reinvigorating the Japanese economy which contracted by 6.7% in the immediate 3-months following the increase in the Japanese sales tax last year. Business investment rose by 0.1% and private consumption was up 0.3% in Q4. Comments from BOJ sources that further monetary easing could be ‘counterproductive’ have added some further uncertainty to the outlook , but we see such comments as the normal to-and-fro from policymakers, and overall we still see the BOJ announcing more stimulus measures around the middle of the year, even more so after the relative softness of Q4 growth. Tim Fox +9714 230 7800

GCC Macro This month we focus on developments in Saudi Arabia. Lower oil prices have continued to weigh on sentiment and budget revenues, but the authorities have stuck to their policy of fighting for market share in global oil markets by increasing output and cutting prices to Asian customers in January. The new King also announced a substantial spending package which should support domestic demand. Financing the budget deficit this year will likely involve both drawing down fiscal reserves and increasing domestic borrowing.

Increased spending in Saudi Arabia Concern about the impact of a lower oil price on government spending in the region was somewhat alleviated earlier this month, with the announcement of a substantial SAR 110bn (USD 30bn) spending package in Saudi Arabia, marking the accession of King Salman to the throne. The change in leadership in the Kingdom was smooth, and although some key changes were made in the cabinet, the Finance, Oil and Labour ministers retained their positions suggesting policy continuity on the macro front. The bulk of the additional spending this year will be on one-off bonus payments to public sector workers, students, pensioners as well as additional grants to the ministry of social affairs. The SAR 90bn boost to current spending is contrary to statements in December’s official budget which prioritized capital and infrastructure spending and promised continued rationalization of wage spending. Just SAR 20bn was allocated to water and energy projects, which may at least in part be classified as ‘capital’ spending.

Saudi Arabia: Budget spending

Source: Haver Analytics, Emirates NBD Research Nevertheless, the size of the additional fiscal stimulus confirms our view that the Saudi government is unlikely to cut spending aggressively in the near-term despite the ongoing weakness in oil prices. It has also boosted confidence in the region that domestic demand should be supported by public sector spending, at least in the short-term. Indeed, the latest purchasing managers’ index

(PMI) readings for January show that the non-oil sectors in both Saudi Arabia and the UAE are continuing to expand at robust rates, despite the continued slump in oil prices. Moreover, firms surveyed expect strong order growth to continue in the coming months and have been hiring workers and building up purchases and inventories in preparation for this. Oil output increased in January Saudi Arabia also appears to be sticking to its guns when it comes to fighting for its oil market share, increasing output in January by 220,000 bpd according to Bloomberg estimates, while also reportedly further cutting prices to Asian customers. Iraq and Kuwait also increased oil production last month, while output from the UAE was unchanged. Increased supply both from OPEC producers and North America – despite a sharp decline in the number of active oil rigs in the USA –continued to push oil prices lower in January. OPEC’s reference price averaged just USD 44pb last month, down -26% m/m. However, the average oil price for the first half of February rose 17% to USD 52pb, and the consensus forecast for 2015 is still (just) above USD 60pb.

Saudi Arabia: Oil output and OPEC price

Source: Bloomberg, Emirates NBD Research How will the budget deficit be financed? With oil prices remaining relatively low compared to 2014, and upward revisions to the official 2015 budget, questions abound about how the projected budget shortfall will be financed and what impact – if any – this will have on domestic liquidity. In Saudi Arabia, we had projected an overspend on the original SAR 860bn official budget, so the recently announced additional package simply shrinks the gap with our own forecast of SAR 1.0tn in government spending this year. The consensus oil price forecast for 2015 has declined from USD 65 pb a month ago to USD 60pb currently. Consequently, our projected budget deficit has widened to –SAR 190bn (USD 50.7bn; -11.8% of GDP) this year. We retain our view that the budget shortfall in Saudi Arabia will likely be financed through a mix of running down accumulated savings as well as increased domestic borrowing.

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We have already seen evidence that the government is willing to tap into its reserves to finance spending, as SAMAs net foreign assets declined by a cumulative -USD 12.8bn in September-December 2014. USD 7.8bn of this decline was in December alone. The authorities have also tapped into domestic deposits, which declined by –SAR 82.6bn (-USD 22bn) in the last four months of 2014. We note that the government deposits in the domestic banking system amounted to a substantial SAR 1.6tn (USD 416.2bn). This excludes central government deposits and reserves at the central bank, which stood at SAR 1.4tn (USD 376bn) in December 2014, excluding the deposits of government institutions. Essentially, this means the total reported reserves of the authorities at the end of last year amounted to USD 1.5tn. To put this in context, the government could finance a budget deficit of USD 50bn every year for the next thirty years, just out of its domestic and foreign currency reserves.

Government deposits and reserves

Source: Haver Analytics, Emirates NBD Research However, to the extent that the government continues to draw down deposits in the local banks significantly, this could lead to tighter liquidity conditions. While private sector credit growth has remained relatively robust and steady between 10-12% over the last couple of years, increased demand from public sector enterprises (PSEs) for bank loans, or a reduction in government deposits could start to crowd out private sector borrowers and/or raise borrowing costs. At this stage, we expect the authorities to be prudent in terms of liquidity management (such as financing the budget through increased domestic bonds issuance/ FX reserves rather than using deposits in local banks) to prevent a significant tightening in domestic liquidity conditions. On the credit side, loans to non-financial PSEs started to pick up in Q4 2014, but annual growth was relatively low at 3.8% y/y in December. Banks’ holdings of government bonds declined m/m in September through November but increased 1.3% m/m in December. Annual growth in lending to the public sector (combined government and PSEs) was still relatively low at 5.5% y/y in December.

In conclusion, we continue to believe that the authorities are able to maintain spending at a relatively high level this year despite substantial cuts in oil revenues. This should support activity in the non-oil sectors both in Saudi Arabia and in the rest of the GCC. Financing the expected shortfall this year should be easily managed through an appropriate mix of domestic debt issuance and tapping into accumulated reserves.

Public sector credit growth


Khatija Haque +971 4 230 7803

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Non-GCC Macro Four years after the start of the Arab Spring, the outlook for MENA’s net oil importers is finally turning a corner. In comparison to other emerging markets, both within the Middle East and further afield, the economies of North Africa and the Levant (Morocco, Tunisia, Egypt, Lebanon and Jordan) look relatively well positioned to withstand many of the external headwinds buffeting the global economic and financial market landscape. After four years of below potential growth, there is a significant amount of pent-up demand that can be released under the right conditions.

The economic backdrop for this region has already started showing signs of improvement in several areas. First, there have been encouraging signs of a revival within the tourism sectors, which account for anywhere between 10-20% of GDP. Full-year data from STR Global shows hotel occupancy rates improving across the board in 2014. This has been most noticeable in Egypt, which saw average occupancy of 51.6%, compared to 44.3% in 2013. Morocco recorded the highest occupancy rates for the second consecutive year, most likely as a result of its relative political stability. Similarly, data from national central banks shows the number of tourist arrivals gradually increasing in Q414, particularly in Jordan and Lebanon where there have been tentative signs of improving security environments over the past several months.

Hotel occupancy rates

Source: STR Gl;obal, Emirates NBD Research There are also indications that fixed investment has been picking up, which may be signaling improved confidence in the region’s longer-term outlook. Available data for Q3 2014 shows cumulative net foreign direct investment in Egypt, Jordan and Morocco hitting USD2.7bn between July-September, which is the highest since Q2 2012, and the third highest quarterly outturn dating back to 2009. More timely figures on the number of contracts signed also shows a noticeable pick-up in activity through January. This can either be a sign that large-scale projects that were previously stalled are now receiving approval, or that investors are more optimistic on the economic backdrop. Either way, stronger FDI inflows are an unambiguously positive development for this region.

A stabilization in central bank’s holdings of FX reserves is highlighting an easing in balance of payments pressures. Morocco, Jordan and Lebanon all saw noticeable increases in their stocks of FX reserves as measured by months of imports, and are now comfortably above the IMF’s warning threshold of three months. This is particularly important for the latter two economies given their USD pegs, and should finally remove concerns about disorderly devaluations. The story is slightly different in Egypt and Tunisia, where FX reserves continue to come under pressure, which suggests their respective currencies are at risk of further depreciation this year.

Contracts awarded

Source: MEED, Emirates NBD Research Key themes in 2015 There are four main trends that are likely to shape the regional economic backdrop in 2015. First, we expect central banks to maintain an easing bias this year, with the monetary policy focus shifting from balance of payments stability to stimulating growth. Indeed, weaker global commodity prices and currency appreciation for the USD pegs will help limit inflationary pressures, while the build-up in central banks’ holdings of FX reserves has eased devaluation fears. In recent weeks Egypt and Jordan have slashed interest rates, and we are penciling in further cuts for both economies, in addition to Tunisia, over the coming quarters. Second, we are expecting an across-the-board acceleration in economic activity. In fact, our regional weighted average real GDP growth forecast for 2015 sits at 4.0%, which is not only up from 2.8% in 2014, but is also higher than the GCC’s projected 3.4% rate of expansion. This is the first time since 2010 that MENA’s oil importers have outperformed the GCC in terms of the pace of headline GDP growth. In addition to the boost that will materialize from higher FDI inflows and tourist arrivals, we also expect further monetary loosening to help stimulate private sector credit growth this year. As of September, average credit growth to the private sector started to outpace that to the public sector, reversing a trend of higher government borrowing that had been in place since late 2010.

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Third, several economies should see their sovereign credit profiles improve this year. Since 2011, the trend in ratings’ actions has been almost uniformly negative. Only Egypt has received an upgrade (from S&P and Fitch), and that has come off a very low base. However, the combination of accelerating growth, increased political stability, lower fiscal deficits, and a slowing in public sector debt loads, should set the stage for credit rating upgrades in the second half of 2015. The one notable exception is Lebanon, where a policy vacuum and ongoing security concerns continue to undermine the economic outlook.

Avg. weighted real GDP growth

Source: Emirates NBD Research Fourth, we also expect to see an uptick in international debt issuance. Having relied on a mix of GCC aid and IMF support in recent years, the time appears to be right for many of MENA’s oil importers to return to international bond markets in search of financing. For the first time since the start of the Arab Spring, Tunisia returned to the market in January without any external backing, and raised USD1bn in 10-year bonds (yielding 5.87% with an order book of USD4bn), while the governor of the central bank has previously said the country plans to raise USD1.75bn in 2015. With Jordan’s IMF Stand-By Arrangement set to come to an end in August (chart 8), we would not be surprised to see a bond issued by the Hashemite Kingdom in H1. Egypt also stands out as a likely candidate to tap international debt markets in our view, as the country lacks an IMF agreement and is likely eager to ease the burden of financing the fiscal deficit off of the domestic banking sector. Although aid inflows from the GCC have been extensive, such transfers will not be unlimited, particularly in a world of sub-USD60 oil.

Jean-Paul Pigat +971 4 230 7807

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Fixed Income Although the Greek issue has been the most talked about topic in the last month, it has failed to translate into material price movements in the fixed income market. Instead, the return of risk appetite appears to be linked to stablising oil prices. The lack of negative news headlines from the key US and UK markets, coupled with various forms of quantitative easing from ECB, BoJ and China have helped credit markets rise, while most safe haven assets have declined during the month. Global Bonds Markets have been surprisingly sanguine over the last month, despite major geopolitical developments. Greece is centre stage once again with politics, personalities and the pain of austerity playing their part in fuelling the stand-off with the Eurozone. Although expected QE measures from ECB have helped, market complacence on this issue is surprising. The VIX Index at 14.69 is well below its 10 year average of 20.1 and 5 year average of 18.5. The receding bid for safe haven assets led government bonds, barring German Bunds, to fall noticeably and corporate bonds to rise during the month. Amid day-to-day swings, derivative markets (aka CDS) marched to tighter levels. Despite some uncertainty regarding the timing of the expected Fed hike, the direction of benchmark US yields has been one way during the month. 10Yr treasury yields rose 25bp over the month to 2.12%. UK yields are also 18bps higher (to 1.76%) as the UK economy is growing solidly and the BoE appears to have adopted a relaxed attitude to deflation risk. On the other hand, German Bunds enjoyed a safe haven bid amid uncertainty over Greece and eased a further 10bps to 0.38% despite reporting improved economic growth data.

10Yr Government Bond Yields

Yield % 1M chg 3M chg YTD chg

US 2.12 25 -19 -5

UK 1.76 18 -36 1

Germany 0.38 -10 -42 -16

Greece 9.90 107 182 81

Russia 6.19 -97 80 -28

Brazil 4.62 46 32 52

Source: Bloomberg The central banks that are cutting policy rates far outnumber the ones that have already or are likely to raise rates soon. In addition, different forms of easing measures are being adopted across Europe, China and Japan. While the US rate rises are visible on the 2015 horizon, continuation of cheap liquidity seems assured from other parts of the world, which in turn is supporting the bid for global credit.

The general health of corporates is good, as shown in recent result announcements. Oil prices directly affect the performance of energy sector issuers and so did exert pressure on corporate bond indices in the last half year, particularly in the HY space. However, with oil prices now appearing to have found a floor, the idiosyncratic factors affecting credit spreads have minimised. Unsurprisingly, global corporate bonds rallied an average circa half a point during the month despite falling benchmark yields.

Global Corporate Bond OAS (bps)

OAS 1M chg 3M chg YTD chg

US IG Corp 136 -7 3 -2

US HY Corp 506 -67 28 -40

EUR IG Corp 74 -6 3 -5

EUR HY Corp 370 -23 24 -29

USD EM SOV 288 -32 -9 -3

USD EM CORP 435 -53 61 -13

Source: Bloomberg High yield bonds outperformed investment grade in all markets. OAS on US HY corps tightened 72bps while that on Euro HY were lower by 24bps. The yield premium of USD Emerging Market corporate bonds over that of US IG corporate bonds dropped from 330bps in mid- January 2015 to 299bps as we go to print today – albeit still materially higher than the 194bps that it touched in September 2014. We ascribe the current wide spreads, not to lack of investors’ appetite for EM risk but to idiosyncratic widening of spreads on corporates from certain troubled economies such as Ukraine, Argentina, Russia and Venezuela etc.

Global CDS indices – Spreads (in bps)

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CDX US IG 65 -7 -2 -1

Itraxx Europe Main 57 -4 -8 -7

iTraxx Europe Crossover 302 -38 -57 -46

Itraxx Asia ExJ IG 106 -14 0 -2

CDX Emerging Markets 89 1 -3 -1

Itraxx CEEMEA Corp 505 -85 202 95

Source: Bloomberg

GCC Market Given the dominance of high-rated sovereigns and GREs in it, the correlation of the GCC credit universe to oscillating Treasury yields is high. However, against the back drop of stabilising oil prices, the GCC credit market has had a largely stable month despite rising underlying benchmark yields. Having said that, a slight sense of heaviness does exist in investment grade paper amid profit taking while high yield names continue to be in demand from retail investors and family offices. Bonds from Bahrain issuers represent the weakest link in the GCC credit universe, both in terms of lower credit quality as well as wider than average credit spreads for their rating band. Total year-to-date return on GCC bonds is at 1.6%. On average, the credit quality of GCC issuers is in the ‘A’ category, one notch higher than the average credit rating of US IG issuers at ‘A-‘. With average yield on GCC bonds at 2.96% (vs 3.08% on US IG) for a much lower average duration of 4.64yrs compared with 7.26yrs for US IG, we think GCC bonds will continue to find favour with international investors. One topical development of the month was S&P downgrading credit ratings on several GCC issuers on the back of lower oil prices. Bahrain and Oman ratings were downgraded by one notch to BBB- (from BBB) and A- (from A) respectively. S&P revised the outlook on Saudi Arabia’s AA- rating to negative from stable. All relevant government related entities such as Central Bank of Bahrain, Saudi Electricity and SABIC’s ratings and outlooks were changed accordingly. S&P also revised the outlook on Dar-Al Arkan’s B+ rating to negative during the month. Although the impact of lower oil prices has begun to be reflected in the credit ratings, actual trading prices remain well supported due to demand-supply dynamics. In fact SECO44s, one of the longest dated papers in the GCC universe, are trading at USD 112, YTW of 4.7%, circa 25bps tighter than where it was at the beginning of the year. The BUAEUL index that represents liquid investment grade bonds from the UAE, that are more than USD 500 mn in size, has risen circa half a point during the month, with all of the increase in the underlying benchmark yields being absorbed by 24bps decline in option adjusted spreads.

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Price ($) 108.41 0.32 1.26 1.64

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Yield to Worst (%) 2.67 -2 1 -23

Source: Bloomberg Result announcements from GCC corporates was generally better than expected. UAE issuers, that account for more than 58% of the GCC credit universe reported double digit revenue growth and

profit growth in mid-teens. Most issuers had a positive outlook for 2015 although banks presented a little more subdued view. Banks warned of certain amount of caution as they prepare for possible tightening of liquidity due to falling oil revenues in the region. Year-to-date, all new issues have been from the banking sector, indicating the sectors’ bias towards boosting capital while rates are low. With a slow start in January, activity in the primary market has picked up lately. National Bank of Abu Dhabi issued USD 750mn of 5 year senior unsecured bond and First Gulf Bank just priced a USD 750mn senior unsecured, 5 year Reg S deal at MS+100bps. Compared with new deals worth USD 2.5bn (including USD1.0bn from DIB in January), we have had redemptions worth USD 3.95bn to date, leaving plenty of money on the table looking for reinvestment. Anita Yadav +9714 230 7630

Currencies The dollar has seen strong gains over the last month driven by a reappraisal of Fed tightening prospects as well as by pronounced weakness of the EUR following the ECB’s decision to launch a massive QE program. This was followed by a number of other central banks easing monetary policy further, highlighting the contrasting monetary policy trends that are emerging in 2015. On top of these macro themes the fate of Greece in or out of the Eurozone still hangs in the balance, which contains the risk of pushing the EUR considerably lower still.

Dollar’s uptrend remains strong

Source: Bloomberg

ECB’s QE decision still reverberating A month ago when we wrote our January edition it coincided with the surprise decision of the SNB to suspend the CHF’s peg to the EUR. In hindsight it is now even clearer that this decision was largely a pre-emptive move ahead of the ECB’s decision to launch a massive QE program a week later. The ECB announced a EUR1.1 trillion program, whereby it will buy EUR60bn of assets per month beginning in March and lasting until September 2016 – much bigger than the markets had anticipated. That decision has continued to have reverberations across FX markets, with the SNB cutting interest rates further into negative territory and with other small European central banks also having to respond to the deflationary risks coming from the Eurozone. Consequently Denmark has defended its peg to the EUR through a combination of intervention and interest rate cuts, taking interest rates there also heavily into negative territory. Sweden’s decision to go negative as well may not have been driven by the SEK exchange rate per se, but it still reflects concerns about deflationary risks emanating from the Eurozone. The Bank Of England also alluded to the possibility of looking at negative interest rates, even though its central view was that the next move in UK interest rates would be up. Outside of Europe as well other central banks have been fairly active in terms of providing further monetary support in the context of risks to growth coming from a variety of sources including weak commodity prices.

Negative interest rates a worrying new trend We view the increasing resort to negative interest rates with some concern. It used to be that negative interest rates were used only in exceptional circumstances. However, there is a risk that by becoming more commonplace, negative rates could create even more dysfunctionality in already dysfunctional financial markets, as incentives become skewed and distortions begin to appear. Certainly the more they are used the more they might contribute to a ‘currency war’ mentality, even if this may not be the primary motive behind them. And certainly they also highlight the distorting effect that the single currency appears to be having on some smaller European economies on the fringes of the Euro area by forcing them to resort to this extreme approach. Greece’s pandora’s box That is in addition to the distortions being imposed on those peripheral economies that are within the Eurozone as demonstrated by the experience of Greece. With no formal mechanism to allow a country to leave the Euro, the danger is certainly that the situation will turn chaotic should the Greek government fail to reach a deal with its creditors in the coming days/weeks. Somewhat surprisingly the markets appear currently to be quite sanguine about the prospects probably assuming that the negotiations will follow the usual pattern. This is that they will go down to the wire, with a last minute deal emerging at the end of the month to kick the can a little further down the road. However, in this instance an eventual deal to secure immediate financing (which is still a very big if) will still not address the much bigger issue of how to handle Greece’s enormous pile of debt (176% of GDP), which is why we remain more pessimistic about Greece’s prospects of remaining in the single currency. Should the talks fail and the ECB pulls the plug on financing Greek banks, the EUR would certainly suffer – the question is by how much? Until now, our assumptions underpinning our EUR forecasts, including the new ones updated today, have been premised on Greece remaining in the single currency, and on expected EUR weakness merely reflecting divergent monetary policy trends between the US and the Eurozone. This we thought would have the potential to take the EUR/USD rate close to parity over the coming year or so, as the ECB’s QE program gradually undermines the value of the single currency. However, should we enter a world in which a country can leave the Euro, this would open-up a completely new can of worms which could we think have the scope to push the EUR a lot lower. Markets appear too sanguine Another possible reason why markets have become somewhat inured to Greece’s possible Euro exit, is that they have been reassured by the fact that financial exposures to Greece have been reduced and even ring fenced in recent years, such that any contagion to other peripheral countries should be limited. Such optimism is probably misplaced however, even though steps have been taken to create a banking union and a stronger stabilization mechanism that should also help to defuse any tensions that might arise especially in the bond markets. In fact these mechanisms might actually have the perverse effect of exaggerating the

80

85

90

95

100

Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15

DXY Index

pressure on the EUR, in our view, as it would be the only avenue left (along with equities) through which to express negativity. In any case the problems are less to do with immediate reactions of financial markets, in our view, and more to do with the political and social consequences that are likely to result from a Greek exit over a period of time. Markets would begin to question who else might be tempted by the prospect of life outside the single currency, and more importantly voters in Eurozone countries might also be tempted to push for this outcome. Once the EUR begins to unravel there is no definitive answer to where it might stop and hence the EUR’s value would begin to reflect these deeper more existential issues and concerns. One possible caveat is that without Greece in the EUR the single currency might actually be stronger, as it might be further still if some other peripheral countries also depart, reducing it to a rump of stronger members. This argument has some merit, but it would take significant confidence and certainty that this is where things will end up. From our perspective a Greek departure would create anything but certainty about the future, at least in the initial stages. As such we are more inclined to the view that it could overshoot on the downside at least at first. There is enough history since the EUR’s inception for EUR/USD to find its way back to the low 0.80s in extreme circumstances, and the historical relationships with the old Deutschemark also suggest that it could even fall further still.

EUR/USD has precedent below parity

Source: Bloomberg Tim Fox +9714 230 7800

0.8

1.0

1.2

1.4

1.6

1999 2002 2005 2008 2011 2014

EUR/USD

Equities The start to 2015 has been marked by apparent contradictions with both the bond market and equity markets trading near all-time highs, even against a backdrop of game-changing events that have included massive ECB QE and an increased probability of ‘Grexit’. While these resulted in increased volatility, stabilization in commodity prices and an accommodative monetary policy across the world ex-the US boosted equity markets. The MSCI World index has rallied +2.6% ytd on the back of broad based rally across regions with the MSCI Emerging Markets adding +2.8% ytd, the MSCI G7 Countries index rallying +2.6% and the S&P Pan Arab Composite index gaining +7.1%. In the near term, geopolitics in the Eurozone and in Ukraine is likely to remain the main focus. However, investors are also likely to pay equal if not more attention to economic data from the US and the corresponding change in the Fed’s language as market expectations move closer to a hike in interest rates in H1 2015. Regionally, lack of catalysts is likely to weigh on equity markets now that oil prices have stabilized a little. However, Saudi Arabia is likely to remain in focus ahead of the market opening to foreign investors sometime in Q2 2015. Earnings season – not too disappointing The ongoing Q4 2014 earnings season has been a mixed bag as certain sectors feel the pinch of the sharp decline in commodity prices and its impact on broader global economic growth.

According to FactSet, around 390 companies on the S&P 500 index have reported so far and 77% of them have reported earnings above the mean estimate and 58% of them have reported sales above the mean estimate. The blended earnings growth for Q4 2014 is 3.1% and the blended revenue growth rate is 1.7%. The more important facet of the earnings season in the US so far has been the resultant downwards revisions to Q1 2015 and Q2 2015 earnings. The Q1 2015 aggregate estimate has dropped by 7.4% since the start of the year mainly on account of downward revisions to energy sector which has seen earnings revised lower by as much as 48.6%. European earnings season has so far remained relatively subdued. According to market data, around 100 companies on the Euro Stoxx 600 index (representing 44% of total market capitalization) have reported so far and 55% of them have beaten earnings estimates while 51% of them have reported revenues ahead of estimates. Again earnings for the next 12-months have been revised lower by -4.2% since the start of the year. Oil & Gas sector stocks dominate the revisions with earnings for the sector being lowered by 25%. The Q4 2014 earning of GCC companies has presented a mixed picture. According to Bloomberg, 27 out of 32 companies have reported on the DFM index and they on an aggregate basis have seen an earnings growth of 15.3% and a revenue growth of 10.2%. This translates into a positive 8.3% sales surprise and a 28.1% earnings surprise. However, the aggregate of 167 companies on the Tadawul that have reported suggests a decline of 2.9% in sales and 28.0% in revenues. This translates into a negative 5.0% sales surprise and a negative 36.7% earnings surprise.

Equity Trends

Source: Bloomberg, Emirates NBD Research Reversing Down – Up previous month & down this month; Trending Down – Down previous and this month; Trending Up – Up Previous and this month; Reversing Up – Down previous month and up this month

Sensex Hangseng

Nikkei

Bovespa

Euro Stoxx 600 Cac

Dax

FTSE 100

S&P 500 Nasdaq

Qatar Ex

Kuwait

Bahrain Bourse

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

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-8.0 -3.0 2.0 7.0 12.0 17.0 22.0

Prev

ious

Mon

th (1

6 D

ec -

15 J

an) (

%)

This Month (16 Jan - 15 Feb) (%)

Broadly speaking, downward revisions in earnings have been accentuated by weakness in commodity prices and in a sense masks the strength witnessed in earnings revision of cyclical sector stocks. The performance of global equity markets and sectoral returns indicate that investors are playing the broader economic recovery and willing to look through the differential performance. For example, in the three-month period when the S&P 500 index has rallied 2.8%, consumer services sector stocks has returned a median of 9.9% while oil & gas stocks have declined -5.2%. Developed Markets Developed market equities has made a positive start to the year on the back of the boost provided by the QE program of the ECB and continuing strong data from US. Currency movements in the EUR and the JPY also provided a filip to European and Japanese equities. Ironically, gains were led by European equities, a region which is the source of most uncertainty at the moment, with the Euro Stoxx 600 index adding +10.1% ytd. In contrast, the S&P 500 index added +2.0% ytd and the Nikkei index rallied +4.3% ytd. Does Greece Matter? With the headlines being currently dominated by the impasse over a debt agreement between Greece and the Eurozone, one would expect investors to tread cautiously. However, the markets, especially European equity markets, have been remarkably calm and have actually led the gains in developed markets (as noted above). This begs the question that are investors ambivalent to what happens in Greece or simply complacent and optimistic that eventually a deal will be reached. In our view it is likely to be more of the latter, all the more so when the macroeconomic picture is improving within Europe and in the US. An ample supply of liquidity within the system is also feeding through the gains in equities. A relatively subdued political reaction from other peripheral Eurozone countries including Italy and Spain and the fact that this impasse is likely to follow the past trend and drag for months has perhaps helped in calming investor sentiment. The same is reflected in the recent BofA Merrill Lynch Fund Managers Survey for February 2015. According to the survey 51% make the Euro region their top-pick in equities over a one-year horizon, up from 18% in January. This is driven by optimism over economy growth with nearly 81% of regional specialists expecting the Eurozone economy to strengthen in the next one year. Emerging Markets Despite an overhang of a possible interest rate hike in the US over the next six months, emerging market equities have made a strong start to 2015 mainly on the back of strength in BRIC equities. The MSCI BRIC index has rallied +4.3% ytd compared to a gain of 2.8% ytd in the MSCI Emerging Market index. While gains in India and China were on account of their central banks easing monetary policy as they pursue growth, rally in Russian equities were because of a sharp gain in oil prices and a ceasefire agreement between Russia and Ukraine. In fact, the Russian RTS index is the second best performing index in the world this year in USD terms.

India – Budget in focus Despite mixed economic data, Indian equities have made a strong start to 2015, partly on account of a surprise rate cut by the Reserve Bank of India and partly on account of expectations from the budget which is scheduled for last week of February 2015. Unlike the recent past, this year’s budget will be under greater scrutiny given the change in government, the announcements made by government officials ahead of the budget and the expectations built into the market from the budget. Investors will look for the following pointers in the budget – • Roadmap to rein in subsidies – With oil prices relatively

subdued, investors will be keen to see if the government has a roadmap to curb subsidies in other areas or not. Investors will also watch for government moves on country-wide implementation of cash transfers in lieu of subsidies.

• Shift to Capital Spending – Investors will be keen to see the thrust of the government on augmenting infrastructure, boost manufacturing and develop supply chain.

• Fiscal Strategy – This is something which the RBI along with investors will keenly monitor. Given that the RBI has in a sense linked further rate cuts to the government’s fiscal strategy, a credible deficit target could actually play a key role in accelerating the rate cut cycle.

• Key Reforms – The timelines for key reform measure mainly the Goods & Services tax is expected to be announced in the upcoming budget. Any delay to the expected roll-out will be a disappointment to markets.

MENA Markets A sharp pull-back in oil prices coupled with a series of announcements by the new Saudi King (please see GCC macro page 5) helped turnaround sentiments around GCC equities in general and Saudi equities in particular. The S&P Pan Arab Composite index has rallied +7.1% ytd mainly driven by a +13.0% ytd rally in the Tadawul. In fact the Tadawul is now the best performing equity market in the world this year. Brent Crude has now gained +7.7% since the start of the year. While sentiment has improved, some regional markets still lack confidence, notably the UAE bourses. This is reflected in lower volumes, which suggest that investors are preferring to stay on the sidelines despite a recovery in oil prices. The average daily valued traded (ADV) in January 2015 declined 48% on the DFM index compared to the ADV in 2014. In fact, the DFM index also saw the largest outflow from foreign investors in over two years with non-GCC investors selling to the tune of AED 417mn. Aditya Pugalia +9714 230 7802

GCC in Pictures

GCC Oil Production and Reference Price


Inflation

Source: Haver Analytics, Emirates NBD Research

Money supply (ex Government. deposits)


Purchasing Managers’ Index

Source: Markit/ HSBC, Emirates NBD Research

CDS Spreads

Source: Bloomberg

Private sector credit

*UAE data is total bank loan growth, not private sector credit Source: Haver Analytics, Emirates NBD Research

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US

D /b

bl

mn

bpd

Oil production OPEC Reference Price

Excludes Bahrain and Oman

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% y

/y

Qatar UAE KSA

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% y

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62

64

Jan-14 May-14 Sep-14 Jan-15

UAE KSA

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bp

Abu Dhabi KSA Dubai

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% y

/y

Qatar UAE KSA

MENA in Pictures

Inflation


Unemployment


M1 Money Supply


FX Reserves


Oil Production


Goods Exports


-2.0

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Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14

JordanMoroccoTunisiaEgypt

% y

/y

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8

9

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15

Q109 Q409 Q310 Q211 Q112 Q412 Q313 Q214

MoroccoEgyptJordan

%

-5

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15

20

25

30

35

Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14

EgyptMoroccoJordan

% y

/y

-60

-40

-20

0

20

40

60

80


TunisiaEgyptJordanMorocco

% y

/y

0

1000

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5000

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7000

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9000

Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15

LibyaIraqIran

thsd

b/d

-20

-10

0

10

20

30

40

50

60


JordanMoroccoEgyptTunisia

% y

/y 3

mm

avg

FX–Major Currency Pairs & Interest Rates

Interest Rate Differentials–EUR


Interest Rate Differentials-CHF


Interest Rate Differentials-CAD


Interest Rate Differentials-GBP


Interest Rate Differentials-JPY


Interest Rate Differentials-AUD


1.10

1.15

1.20

1.25

1.30

1.35

1.40

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

Feb-14 May-14 Aug-14 Nov-14 Feb-15

German 2yr yield - US 2yr yield FX (rhs)

0.85

0.90

0.95

1.00

1.05

1.10

0.0

0.3

0.5

0.8

1.0

1.3

1.5

1.8


US 2yr yield - CHF 2yr yield FX (rhs)

1.05

1.10

1.15

1.20

1.25

1.30

-1.2

-0.8

-0.4

0.0

0.4


US 2yr yield - CAD 2yr yield FX (rhs)

1.45

1.50

1.55

1.60

1.65

1.70

1.75

-0.4

-0.2

0.0

0.2

0.4

0.6


GBP 2yr yield - US 2yr yield FX (rhs)

100.0

105.0

110.0

115.0

120.0

125.0

130.0

0.100.200.300.400.500.600.700.800.90


US 2yr yield - JPY 2yr yield FX (rhs)

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.0

1.5

2.0

2.5

3.0


AUD 2yr yield - US 2 yr yield FX (rhs)

Major Equity Markets

MENA Equity Markets


European Equity Markets


Asian Emerging Equity Markets


US Equity Markets


Latin American Equity Markets


Emerging Europe Equity Markets


-6%-4%-2%0%2%4%6%8%

10%12%14%

18-Jan 23-Jan 28-Jan 2-Feb 7-Feb 12-Feb 17-Feb

Qatar Oman DubaiSaudi Arabia Egypt MoroccoAbu Dhabi Bahrain Kuwait

0%

2%

4%

6%

8%

10%

12%

14%

16-Jan 21-Jan 26-Jan 31-Jan 5-Feb 10-Feb 15-Feb

FTSE 100 Dax Euro Stoxx 600Cac FTSEMIB IBEX

-12%

-8%

-4%

0%

4%

8%

18-Jan 23-Jan 28-Jan 2-Feb 7-Feb 12-Feb 17-Feb

Taiwan JakartaVietnam SensexSouth Korea Shanghai

-2%

0%

2%

4%

6%

8%


S&P 500 Dow Jones Nasdaq Composite

-3%

0%

3%

6%

9%


Mexico Brazil Chile Colombia

-8%

-4%

0%

4%

8%

12%

16%

20%

24%


Poland Istanbul 100 Russia RTS$

Major Equity Markets

MENA Equity Indices PE/ROE 2015E


D. Market Equity Indices PE/ROE 2015E


E. Market Equity Indices PE/ROE 2015E


MENA Equity Indices PB/ROA 2015E


D. Market Equity Indices PB/ROA 2015E


E. Market Equity Indices PB/ROA 2015E


y = 0.2661x + 10.956 R² = 0.0323 4.0

10.0

16.0

22.0

8.0 10.0 12.0 14.0 16.0

BE

st R

OE

201

5

BEst PE 2015

DSM

DFMGI

ADSMI

MADEX

MSM

Tadawul ISE 100

EGX 30

y = 1.4587x - 11.846 R² = 0.3939

6.0

10.0

14.0

18.0

22.0

10.0 12.0 14.0 16.0 18.0 20.0 22.0

BE

st R

OE

201

5

BEst PE 2015

AS51 Index

FTSE 100

Dow Jones

SMI

Nikkei

S&P 500

Cac

Dax

Stoxx 600

Nasdaq

y = 0.709x + 4.6338 R² = 0.1984

0.0

5.0

10.0

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20.0

25.0

0.0 5.0 10.0 15.0 20.0

BE

st R

OE

201

5

BEst PE 2015

Karachi

Nifty

Jakarta

Taiwan Vietnam

Bovespa

Kospi

Shanghai

Jo'burg

Micex

y = 0.6526x + 0.9068 R² = 0.0521

-1.0-0.50.00.51.01.52.02.53.03.5

1.0 1.5 2.0 2.5 3.0

BE

st R

OA

201

5

BEst PB 2015

ADSMI

Tadawul

ISE 100

MSM

DSM

EGX 30

MADEX

y = 1.5377x - 1.2093 R² = 0.7284

0.0

2.0

4.0

6.0

0.5 1.5 2.5 3.5 4.5

BE

st R

OA

201

5

BEst PB 2015

FTSE 100

S&P 500

Dow Jones

SMI

Nasdaq

Nikkei

Dax Stoxx 600 Cac

AS51 Index

y = 0.2257x + 2.2958 R² = 0.0479

0.00.51.01.52.02.53.03.54.0

0.0 1.0 2.0 3.0 4.0

BE

st R

OA

201

5

BEst PB 2015

Karachi

Nifty Jakarta

Taiwan Bovespa

Kospi

Vietnam

Shanghai

Jo'burg Micex

Key Economic Forecasts - GCC

United Arab Emirates 2012 2013 2014 2015f 2016f

Nominal GDP $bn 372.6 402.6 419.0 407.2 454.7

Real GDP % 4.7 5.2 4.5 4.3 5.0

Current A/C % GDP 21.6 16.9 10.1 3.2 5.9

Budget Balance % GDP 8.8 6.4 4.4 -2.8 0.4

CPI % 0.7 1.1 2.3 3.0 3.5

Saudi Arabia

Nominal GDP $bn 734.0 744.3 752.5 705.8 783.8

Real GDP % 5.4 2.7 3.6 2.5 3.0

Current A/C % GDP 22.3 17.7 13.3 -0.6 2.6

Budget Balance % GDP 13.6 6.5 -1.9 -11.8 -6.4

CPI % 2.9 3.5 2.7 3.0 3.5

Qatar

Nominal GDP $bn 190.3 203.2 209.5 213.4 246.0

Real GDP % 6.0 6.3 6.0 6.3 6.9

Current A/C % GDP 32.7 29.1 9.7 -0.1 3.0

Budget Balance % GDP 11.4 15.5 8.4 3.6 4.3

CPI % 1.9 3.1 3.1 3.5 3.7

Kuwait

Nominal GDP $bn 173.8 175.8 172.6 150.2 170.9

Real GDP % 7.7 2.1 0.5 1.8 3.4

Current A/C% GDP 45.3 39.8 36.8 20.8 25.2

Budget Balance % GDP 26.7 25.9 8.8 -4.6 2.4

CPI % 3.2 2.7 2.9 3.5 3.6

Oman

Nominal GDP $bn 77.4 79.6 85.6 82.1 91.5

Real GDP % 5.7 4.7 3.0 2.9 3.2

Current A/C % GDP 10.1 6.4 2.5 -10.9 -4.5

Budget Balance % GDP -0.3 0.9 -3.2 -12.5 -7.2

CPI % 2.9 2.1 1.0 2.0 2.5

Bahrain

Nominal GDP $bn 30.4 32.8 34.6 34.5 37.8

Real GDP % 3.5 5.5 4.3 3.6 4.3

Current A/C % GDP 7.3 7.8 5.4 -0.9 0.6

Budget Balance % GDP -2.0 -3.3 -7.2 -13.1 -10.0

CPI % 2.8 3.3 2.7 3.0 3.5

GCC (GDP weighted avg)

Nominal GDP $bn 475.7 485.7 492.3 464.5 515.8

Real GDP % 5.5 3.8 3.8 3.5 4.2

Current A/C % GDP 25.0 20.5 13.8 1.9 5.3

Budget Balance % GDP 12.7 9.2 1.9 -6.8 -2.5

CPI % 2.3 2.7 2.6 3.1 3.5 Source: Haver Analytics, National sources, Emirates NBD Research

Key Economic Forecasts – Non-GCC Oil Importers

Egypt* 2012 2013 2014 2015f 2016f

Nominal GDP $bn 262.3 268.1 286.4 303.1 326.5

Real GDP % 3.3 2.1 2.2 3.9 4.7

Current A/C % GDP -3.9 -2.4 -0.8 -0.1 -0.4


CPI % 7.2 9.5 10.5 12.0 10.0

Jordan

Nominal GDP $bn 27.2 29.6 31.3 33.9 36.7

Real GDP % 2.7 2.8 3.0 3.3 3.5

Current A/C % GDP -17.3 -11.7 -4.5 3.7 1.1


CPI % 4.8 5.5 2.8 5.0 5.0

Lebanon

Nominal GDP $bn 44.1 47.2 51.9 56.4 62.6

Real GDP % 2.8 3.0 1.2 1.7 3.1

Current A/C % GDP -18.1 -23.1 -20.8 -12.8 -12.6


CPI % 6.6 4.2 2.0 6.0 5.0

Tunisia

Nominal GDP $bn 45.1 46.3 47.3 47.7 51.8

Real GDP % 4.8 2.5 2.7 3.6 3.5

Current A/C% GDP -8.3 -8.4 -8.3 -7.0 -5.9


CPI % 5.6 6.1 5.5 4.5 5.0

Morocco 3.5 5.6 6.1 6.3 5.8

Nominal GDP $bn 95.9 103.7 103.6 114.0 126.6

Real GDP % 2.7 4.4 2.4 5.0 6.0

Current A/C % GDP -9.7 -7.6 -5.3 0.9 2.0


CPI % 1.3 1.8 0.0 5.0 5.0

Oil Importers (GDP weighted avg)

Nominal GDP $bn 174.3 177.6 189.6 200.8 216.1

Real GDP % 3.24 2.75 2.21 3.86 4.66

Current A/C % GDP -7.6 -6.6 -4.6 -1.6 -1.6


CPI % 5.6 6.8 6.6 8.9 7.7 Source: Haver Analytics, National sources, Emirates NBD Research *Egypt data refers to fiscal year (July-June)

Key Economic Forecasts – Non-GCC Oil Exporters

Algeria 2012 2013 2014 2015f 2016f

Nominal GDP $bn 207.8 208.8 230.7 251.5 270.8

Real GDP % 3.3 2.8 -0.6 2.9 3.0

Current A/C % GDP 5.9 0.4 -2.5 -2.3 -2.2


CPI % 9.7 4.1 4.5 6.0 6.0

Libya

Nominal GDP $bn 95.8 74.6 61.8 72.5 85.0

Real GDP % 104.5 -16.2 -43.7 13.2 14.3

Current A/C % GDP 30.7 21.7 -4.1 8.6 23.5

Budget Balance % GDP 17.8 -7.8 -49.5 -20.5 -7.7

CPI % 6.9 7.5 8.5 9.5 9.5

Iran

Nominal GDP $bn 586.2 576.1 670.6 732.4 802.3

Real GDP % -6.6 -18.2 1.9 3.8 3.9

Current A/C % GDP 4.7 5.4 5.2 5.3 5.4

Budget Balance % GDP 1.9 0.3 -0.5 -0.7 -0.7

CPI % 19.7 40.0 15.0 12.0 12.0

Iraq

Nominal GDP $bn 184.2 195.5 192.1 260.0 290.3

Real GDP % 10.3 4.2 -6.2 6.9 8.9

Current A/C% GDP 17.3 14.0 10.8 8.9 10.4

Budget Balance % GDP 4.7 3.2 5.3 8.1 12.1

CPI % 2.1 3.0 7.0 7.0 7.0

Oil Exporters (GDP weighted avg)

Nominal GDP $bn 400.3 397.4 470.6 510.9 558.2

Real GDP % 8.1 -9.8 -2.4 4.8 5.3

Current A/C % GDP 9.4 7.1 4.1 4.7 6.0


CPI % 13.6 23.7 11.2 9.7 9.7

Key Economic Forecasts - Global

US 2012 2013 2014f 2015f 2016f

Real GDP % 2.3 2.2 2.4 3.5 3.0

Current A/C % GDP -2.8 -2.4 -2.5 -2.1 -2.3


CPI % 2.1 1.5 1.6 2.0 2.2

Eurozone

Real GDP % -0.3 0.1 0.9 1.5 1.8

Current A/C % GDP 2.0 2.8 2.0 2.5 2.2


CPI % 2.3 1.5 0.4 1.6 1.4

UK

Real GDP % 0.3 1.7 2.7 2.5 2.3

Current A/C% GDP -3.8 -4.5 -2.8 -2.9 -3.6


CPI % 2.8 2.6 1.5 2.0 1.9

Japan

Real GDP % 1.5 1.5 0.0 1.5 1.5

Current A/C % GDP 1.0 0.7 0.5 1.3 1.0


CPI % 0.0 0.4 2.7 1.7 1.5

China

Real GDP % 7.7 7.7 7.0 7.0 6.7

Current A/C % GDP 2.3 2.0 2.3 2.2 2.1

Budget Balance %GDP -1.7 -1.9 -2.0 -2.0 -2.5

CPI% 2.6 2.6 3.0 3.2 2.5

India*

Real GDP% 4.8 4.7 4.8 5.5 6.5

Current A/C% GDP -5.4 -2.8 -2.3 -1.5 -2.2


CPI % 9.3 10.9 8.0 7.0 5.0 Source: Bloomberg, Emirates NBD Research *For India the data refers to fiscal year (April – March)

FX Forecasts

FX Forecasts - Major Forwards

Spot 17.02 1M 3M 6M 12M 3M 6M 12M

EUR/USD 1.1411 1.11 1.08 1.05 1.03 1.1423 1.1441 1.1497

USD/JPY 119.2500 119.0 122.0 125.0 130.0 119.1245 118.9555 118.3810

USD/CHF 0.9369 0.92 0.93 0.95 0.99 0.9329 0.9284 0.9185

GBP/USD 1.5354 1.52 1.50 1.45 1.50 1.5344 1.5338 1.5341

AUD/USD 0.7819 0.77 0.75 0.73 0.70 0.7778 0.7740 0.7677

USD/CAD 1.2389 1.24 1.25 1.28 1.30 1.2403 1.2410 1.2404

EUR/GBP 0.7433 0.73 0.71 0.72 0.69 0.7445 0.7460 0.7495

EUR/JPY 136.0800 132.0 132.0 131.0 133.04 136.0800 136.0802 136.0802

EUR/CHF 1.0694 1.02 1.00 1.00 1.02 1.0659 1.0624 1.0562

EUR/NOK 8.5800 8.75 9.00 9.20 9.20 8.6086 8.6316 8.6774

EUR/SEK 9.5000 9.70 9.75 9.70 9.50 9.4978 9.4949 9.4925

NZD/USD 0.7540 0.75 0.74 0.73 0.72 0.7476 0.7413 0.7300

FX Forecasts - Emerging Forwards

Spot 17.02 1M 3M 6M 12M 3M 6M 12M

USD/SAR* 3.7515 3.75 3.75 3.75 3.75 3.7506 3.7506 3.7543

USD/AED* 3.6730 3.67 3.67 3.67 3.67 3.6725 3.6723 3.6734

USD/KWD 0.2957 0.29 0.29 0.29 0.30 0.3007 0.3055 0.3167

USD/OMR* 0.3850 0.38 0.38 0.38 0.38 0.3868 0.3886 0.3933

USD/BHD* 0.3770 0.376 0.376 0.376 0.376 0.3784 0.3797 0.3855

USD/QAR* 3.6415 3.64 3.64 3.64 3.64 3.6439 3.6455 3.6492

USD/EGP 7.5816 7.70 7.80 8.00 8.30 7.9516 8.2816 8.8516

USD/INR 62.1625 62.00 61.00 60.00 58.00 62.1717 62.1806 62.1990

USD/CNY 6.2548 6.20 6.22 6.25 6.20 - - - Data as of 17 February 2015 Source: Bloomberg, Emirates NBD Research

Interest Rate Forecasts

USD Swaps Forecasts Forwards

Current 3M 6M 12M 3M 6M 12M

2y 0.94 0.90 1.05 1.25 1.11 1.31 1.72

5y 1.77 1.55 1.65 1.80 1.86 1.98 2.19

10y 2.26 2.35 2.65 2.75 2.30 2.38 2.50

2s10s (bp) 133 145 160 150 118 107 78

US Treasury Forecasts

2y 0.66 0.75 0.90 1.10

5y 1.61 1.40 1.50 1.65

10y 2.14 2.20 2.50 2.65

2s10s (bp) 148 145 160 155

USD LIBOR Forecast

3m 0.25670 0.25 0.55 0.80

EIBOR Forecast

3m 0.69143 0.70 0.75 0.95

Policy Rate Forecasts

Current% 3M 6M 12M

FED 0–0.25 0.25 0.50 0.75

ECB 0.15 0.10 0.10 0.10

BoE 0.50 0.50 0.50 0.50

BoJ 0.10 0.10 0.10 0.10

SNB 0.25 0.25 0.25 0.25

RBA 2.50 2.50 2.50 2.50

RBI (repo) 7.75 7.50 7.25 7.00

SAMA (r repo) 0.25 0.25 0.25 0.25

UAE (1W repo) 1.00 1.00 1.00 1.00

CBK (dis. rate) 2.50 2.50 2.50 2.50

QCB (o/n depo) 0.75 0.75 0.75 0.75

CBB (1W depo) 0.50 0.50 0.50 0.50

CBO (o/n repo) 2.00 2.00 2.00 2.00 Prices as of 17 February 2015 Source: Bloomberg, Emirates NBD Research

Global Equities Market Watch

Index Last Close ADV Traded 30d USD mn

Mtd % chg

Ytd % chg

%memberabove 200d

MA BEst PE BEst PB

BEst Dvd Yld

Dow Jones Industrial Average Index 18,048 6,099 5.1 1.3 - - 3.0 2.3

S&P 500 Index 2,100 34,806 5.3 2.0 - - 2.7 2.0

Nasdaq Composite Index 4,899 21,121 5.7 3.4 - - 3.5 1.2

FTSE100 Index 6,898 7,224 2.2 5.1 78 15.9 1.8 3.9

DAX Index 10,896 4,959 1.9 11.1 87 14.1 1.7 2.9

CAC 40 Index 4,754 4,988 3.3 11.3 88 15.6 1.5 3.3

Swiss Market Index 8,748 4,860 4.3 -2.6 55 17.3 2.6 3.3

Nikkei Index 17,987 13,131 2.8 4.1 85 19.4 1.7 1.5

S&P/ASX 200 Index 5,858 3,347 5.9 9.3 66 16.8 2.0 4.4

Stoxx Europe 600 Index 377 38,272 2.7 10.1 80 16.0 1.8 3.4

Dubai Financial Market General Index 3,870 182 5.3 2.5 23 12.1 1.7 3.2

Abu Dhabi Sec Market General Index 4,661 62 4.6 2.9 31 11.5 1.8 4.5

Tadawul All Share Index 9,442 2,517 6.4 13.3 30 15.8 2.1 3.0

Istanbul SE National 100 Index 84,425 1,835 -5.1 -1.5 70 10.4 1.4 2.9

Egyptian Exchange Index 9,434 67 -4.2 5.7 43 13.1 1.6 2.4

Kuwait Stock Exchange Index 6,682 93 1.7 2.2 19 - - -

Bahrain Bourse All Share Index 1,451 1 1.9 1.7 - - - -

Muscat Securities Index 6,695 16 2.1 5.5 37 10.3 1.4 6.3

Qatar Exchange Index 12,554 140 5.5 2.2 45 13.6 2.2 4.3

MADEX Free Float Index 8,404 12 1.3 7.2 65 15.5 2.5 4.0

Hong Kong Hang Seng Index 24,785 3,614 1.3 5.2 68 11.6 1.3 3.5

Shanghai Composite Index 3,247 53,056 1.1 0.4 97 12.6 1.6 2.3

Korea Stock Exchange Index 1,961 3,936 0.6 2.4 55 10.7 1.0 1.5

BSE Sensex 29,136 106 0.4 6.5 67 18.9 2.9 1.4

Nifty 8,809 1,423 0.5 6.8 68 18.8 2.9 1.4

Karachi Stock Exchange Index 33,801 132 -1.8 5.3 84 9.2 1.8 5.4

Taiwan SE Weighted Index 9,530 2,573 1.8 2.4 47 13.3 1.7 3.3

Bovespa Brasil Sao Paulo SE Index 50,636 2,015 7.9 1.3 31 11.3 1.2 4.2

Micex Index 1,794 640 8.9 28.4 73 6.0 0.5 4.8

FTSE/JSE Africa All Share Index 52,833 1,468 3.1 6.2 73 17.4 2.1 3.1

Vietnam Ho Chi Minh Stock Index 587 68 1.9 7.6 61 13.2 2.0 3.2

Jakarta SE Composite Index 5,338 407 2.0 3.2 47 15.6 2.7 2.0

FTSE Bursa Malaysia KLCI Index 1,810 314 1.5 2.6 53 16.1 2.0 3.6

Mexican Stock Exchange 43,252 419 5.6 0.2 - - 2.4 1.7 Prices as of 17 February 2015 Source: Bloomberg, Emirates NBD Research

GCC Equities

Company Price LLC Market Cap (USD mn)

PE 2013

BEst PE 2014

ROE 2013

BEst ROE 2014

PB 2013

ROA 2014

Dvd Yld 2013

BEst DvdYld 2014 RSI

Avg Value Traded 3m (USD mn)

UAE

Etisalat 11.50 24753.8 13.0 11.1 17.5 20.1 2.3 8.3 6.0 6.2 75 6.4

du 5.35 6658.6 15.5 11.7 27.1 30.8 4.3 13.2 4.7 6.5 66 2.3

Agthia 6.40 1045.5 16.6 16.0 13.5 16.6 2.1 8.7 2.3 2.1 59 0.4

Aldar 2.64 5651.3 8.1 12.8 18.3 8.7 1.3 5.9 2.5 2.7 53 17.9

Deyaar Development 0.78 1219.2 37.8 - 3.9 - 1.4 2.4 0.0 - 43 11.0

Emaar Properties 7.37 14366.3 18.2 16.0 7.7 10.7 1.4 4.1 2.0 2.3 51 64.3

DIB 6.81 7330.5 13.0 9.9 13.8 21.3 1.5 1.5 4.7 4.9 50 20.1

NBAD 14.00 18052.2 12.6 11.7 14.4 15.6 1.7 1.5 2.9 3.2 57 2.3

FGB 17.90 19006.3 11.8 11.8 15.8 19.3 1.8 2.6 5.3 5.7 56 14.8

ADCB 7.64 11639.1 10.3 9.9 15.1 17.2 1.4 1.8 4.6 5.4 62 4.7

DFM 2.06 4486.8 70.6 19.3 3.7 10.1 2.5 3.6 2.0 5.1 51 9.3

Dubai Investments 2.47 2569.1 10.8 - 9.4 - 1.0 6.6 2.8 - 52 14.0

Dana Gas 0.47 890.7 10.6 9.4 6.3 3.7 0.6 4.5 - - 46 2.2

Tabreed 1.11 223.2 30.0 10.1 6.1 7.3 0.3 3.2 - 4.5 51 1.5

Air Arabia 1.63 2071.0 17.2 11.2 7.7 13.0 1.3 4.8 4.7 5.2 46 8.5

Aramex 3.30 1315.4 16.0 13.6 13.5 15.5 2.1 9.8 3.8 4.5 58 1.5

DP World 21.00 17430.0 23.0 27.1 7.7 7.2 1.7 3.9 1.3 1.2 61 4.2

Arabtec 3.15 3769.5 17.9 27.9 8.9 9.1 1.6 3.5 3.5 1.1 52 53.7

Depa 0.42 258.2 - 11.9 -8.6 4.8 1.1 -4.1 0.0 - 21 1.3

Drake & Scull 0.78 485.3 19.7 7.3 5.9 7.9 1.1 2.4 - 1.3 38 3.4

Saudi Arabia

Etihad Etisalat 36.74 7540.9 9.9 9.4 29.8 14.4 2.7 15.7 5.5 7.6 31 90.6

Saudi Telecom 66.00 35185.9 10.8 10.4 18.4 19.1 1.9 11.7 4.2 5.8 47 16.7

Zain KSA 7.02 2021.1 - - -21.7 -12.4 1.5 -6.1 0.0 - 49 40.6

Sahara Petchem 17.35 2029.3 15.0 14.4 10.3 9.7 1.5 6.7 4.3 4.3 56 17.2

Sabic 95.99 76761.3 13.2 14.6 16.8 11.2 2.1 7.5 4.5 4.4 61 121.0

Sipchem 30.42 2973.2 18.8 15.7 10.9 10.7 2.0 3.9 3.9 4.9 58 6.9

Saudi Kayan 13.02 5205.9 - 186.0 -2.4 0.6 1.7 -0.7 - 0.0 57 52.4

Yansab 49.97 7492.5 15.7 15.2 18.9 12.7 2.8 11.7 4.1 6.3 57 15.9

Chemanol 13.11 421.4 25.4 16.9 4.6 4.2 1.2 2.5 - 4.6 51 6.6

APPC 48.08 2101.8 12.0 14.0 25.9 23.0 3.0 17.2 3.1 5.3 54 13.5

Company Price

LLC

Market Cap

(USD mn)

PE

2013

BEst

PE

2014

ROE

2013

BEst

ROE

2014

PB

2013

ROA

2014

Dvd

Yld

2013

BEst

DvdYl

d 2014

RS

I

Avg Value

Traded 3m

(USD mn)

Safco 153.50 13639.0 16.5 15.5 36.9 40.4 6.3 32.4 7.7 6.0 64 8.8

Maaden 39.13 12187.8 18.7 16.6 8.9 11.5 1.5 2.8 0.0 0.0 61 89.2

Tasnee 27.76 4949.8 19.0 12.4 9.8 11.4 1.9 2.5 4.5 5.4 53 17.3

Almarai 82.41 13180.3 20.8 23.9 17.0 19.4 3.1 7.0 1.9 1.6 58 8.2

Othaim 108.01 1295.6 14.6 19.2 25.9 24.9 3.5 10.2 2.4 2.1 44 5.6

Alhokair 109.29 6117.8 14.0 26.3 36.2 40.3 4.3 18.6 2.4 2.2 62 13.2

Jarir Marketing 204.26 4944.7 21.9 21.4 59.4 60.3 12.2 31.2 3.5 3.8 65 5.4

Savola 78.97 11240.4 18.6 18.5 19.0 20.9 3.5 7.1 3.2 3.1 50 8.2

Dar Al Arkan 9.70 2792.5 15.6 12.2 4.1 4.7 0.6 3.0 - 1.9 53 122.7

Emaar Economic City 14.89 3373.7 41.4 29.8 3.5 5.0 1.4 1.9 0.0 - 55 15.0

Al Rajhi Bank 62.76 27185.1 15.9 14.2 19.8 17.3 2.8 2.7 3.4 3.6 65 83.7

Samba 48.73 15587.4 10.0 11.9 13.6 12.3 1.3 2.2 3.3 3.1 72 13.8

Riyad Bank 17.95 14354.3 11.1 11.8 12.0 12.7 1.3 2.0 5.0 4.6 58 7.6

Bank Aljazira 29.14 3107.0 17.3 15.5 12.1 10.8 2.0 1.2 0.0 0.7 57 27.0

Saudi Electricity 18.87 20957.9 19.9 25.8 5.5 5.2 1.1 1.2 4.8 3.7 71 14.3

Saudi Arabian Amiantit 13.93 428.9 15.4 18.1 7.2 6.1 1.1 2.4 6.5 5.2 51 8.5

Saudi Cable 10.11 204.8 - - -28.8 - 1.4 -6.6 0.0 - 51 3.9

National Shipping Co 38.75 3253.7 11.8 16.8 13.4 - 1.5 6.5 3.5 3.0 62 15.3

Qatar

ORDS 115.00 10115.8 17.1 13.5 9.8 11.0 1.8 2.7 2.9 3.6 47 3.6

Industries Qatar 153.20 25452.7 12.8 14.1 25.0 18.4 3.0 23.0 6.5 5.9 46 18.1

Barwa Real Estate 48.50 5182.6 7.4 - 10.3 - 0.8 2.9 6.7 - 58 23.7

QNB 200.00 38430.8 12.7 12.3 19.0 19.3 2.3 2.3 4.1 3.8 49 21.7

CBQ 69.40 5659.0 13.1 9.6 10.4 12.9 1.1 1.7 2.8 3.1 55 5.7

Doha Bank 57.60 4086.8 9.2 10.4 13.9 16.0 1.3 2.1 7.7 6.9 49 5.8

QIB 104.20 6761.4 12.2 14.1 11.4 14.8 1.4 1.8 5.8 4.5 45 4.4

QEWC 192.50 6041.5 14.5 14.0 24.5 21.5 3.0 12.3 4.1 4.0 64 3.4

QGTS 25.10 3859.9 15.3 16.2 23.9 19.7 2.6 2.4 5.4 4.7 72 2.9

Oman

Bank Muscat 0.62 3492.3 8.8 7.9 13.3 12.6 1.1 1.9 3.9 4.9 52 2.9

Kuwait

NMTC 1420.00 2421.3 11.7 11.3 9.4 7.3 1.1 4.9 7.1 9.4 54 0.1

Zain 560.00 8197.7 12.3 10.2 13.5 13.9 1.8 7.2 7.2 8.6 57 6.5

Company Price LLC

Market Cap (USD mn)

PE 2012

BEst PE 2013

ROE 2012

BEst ROE 2013

PB 2012

ROA 2012

Dvd Yld 2012

BEst DvdYld 2013 RSI

Avg Value Traded 3m (USD mn)

NBK 900.00 14614.0 16.8 11.8 9.7 14.1 1.6 1.4 3.4 3.9 50 5.9

Burgan Bank 470.00 3103.4 42.3 13.1 4.2 13.3 1.8 0.3 1.3 2.1 51 1.8

Kuwait Projects 690.00 3439.8

2137

9.3 19.7 7.2 - 1.5 0.5 3.2 2.9 49 2.9

Agility 800.00 3123.6 15.6 16.3 5.3 - 0.8 3.3 5.8 5.0 58 3.7

Egypt

Telecom Egypt 11.75 2627.9 8.5 8.4 10.5 8.2 0.9 9.1 6.8 8.0 32 1.9

Sidi Kerir Petchem 15.02 1033.1 6.9 8.0 48.7 34.2 3.1 34.7 10.5 11.5 39 0.6

TMG Holding 10.71 2895.5 21.8 27.4 2.3 3.0 0.5 1.1 0.0 0.9 41 5.0

Palm Hills 4.05 715.4 11.6 14.3 7.2 6.2 0.9 1.7 0.0 - 34 3.5

CIB 54.47 6481.0 9.8 11.2 26.5 29.0 2.5 2.9 3.1 3.3 52 11.2

EFG Hermes 16.00 1202.1 - 16.5 -6.1 5.9 0.6 -0.9 - 2.1 35 4.1

El Ezz Steel Rebars 524.92 919.1 8.9 26.2 31.0 8.4 2.7 5.8 9.3 4.8 37 0.1

El Swedy Electric 50.09 1466.2 74.4 19.8 2.0 9.7 1.5 0.7 - 1.8 52 1.2

Ghabbour Auto 34.90 589.8 39.9 18.0 6.7 11.0 2.3 1.9 - 3.3 42 0.8

Oriental Weavers 12.51 737.5 8.8 18.3 11.0 11.9 0.9 5.6 5.8 2.6 40 1.2

OCIC 307.72 8423.5 - - -17.7 - 5.9 -3.3 0.0 - 55 0.0

Global Telecom 4.04 2776.5 - 15.6 - - - -38.5 - 0.0 39 3.5

Prices as of 17 February 2015 Source: Bloomberg, Emirates NBD Research

Emirates NBD GCC Cash Bonds/Sukuk*

Security Name S&P Rating CCY Bid Bid ytm% 1 week ago 1 month ago 3 month ago

ABU DHABI GOVT INT'L 2019 AA USD 119.60 1.81 120.21 120.65 -

BAHRAIN MUMTALAKAT HLDNG

BBB USD 101.15 1.79 101.48 101.66 -

CBB INTERNATIONAL SUKUK 2018 BBB- USD 113.34 2.53 113.68 114.42 -

DEWA SUKUK 2013 LTD 2018 BBB USD 102.39 2.18 102.86 103.25 -

DUBAI DOF SUKUK LTD 2017 Not Rated USD 107.03 1.63 107.48 107.65 -




DUBAI GOVT INT'L BONDS 2015 Not Rated USD 103.52 1.04 103.78 104.19 -





International Petroleum Invest 2015 AA USD 101.56 0.99 101.79 101.90 -

International Petroleum Invest 2016 AA EUR 105.08 0.70 105.39 105.72 -



International Petroleum Invest 2021 AA EUR 127.39 1.17 127.94 127.56 -


Islamic Development Bank 2015 AAA USD 100.51 1.03 N/A N/A -

Islamic Development Bank 2016 AAA USD 101.92 0.82 102.22 102.43 -

KINGDOM OF BAHRAIN 2020 BBB- USD 109.29 3.50 109.59 109.02 -

KINGDOM OF BAHRAIN 2022 BBB- USD 112.69 4.11 112.71 112.69 -

KINGDOM OF JORDAN 2015 BB- USD 100.30 3.44 100.90 100.69 -

MDC-GMTN B.V. 2016 AA USD 102.97 1.18 103.20 103.45 -

MDC-GMTN B.V. 2019 AA USD 122.09 2.11 122.71 122.96 -

MDC-GMTN B.V. 2021 AA USD 116.67 2.56 117.29 117.18 -

QATARI DIAR FINANCE QSC 2015 AA USD 101.04 1.01 101.26 101.39 -


RAK CAPITAL 2016 A USD 104.02 0.92 104.26 104.54 -

STATE OF QATAR 2019 AA USD 118.13 1.96 118.74 119.23 -





WAHA AEROSPACE BV 2020 AA USD 104.83 2.96 105.11 105.57 -

Abu Dhabi Commercial Bank PJSC

A USD 104.59 1.42 104.88 104.96 -



ADIB CAPITAL INVEST 1 LT able Not Rated USD 103.00 5.46 103.29 103.64 -

ADIB SUKUK CO LTD 2015 Not Rated USD 101.96 0.96 102.22 102.30 -

ADIB SUKUK CO LTD 2016 Not Rated USD 103.98 1.50 104.29 104.41 -

AHB TIER 1 SUKUK LTD Not Rated USD 101.70 5.06 101.89 101.22 -

ARAB BANKING CORPORATION 2017 BB+ USD 95.75 3.67 96.89 97.36 -

BANQUE SAUDI FRANSI 2015 A USD 100.39 0.72 100.45 100.74 -

BBK 2015 Not Rated USD 101.69 2.01 102.04 102.31 -

BURGAN FINANCE NO.1 LTD 2020 BBB USD 116.99 4.42 117.72 117.41 -

Commercial Bank of Qatar QSC/T 2019 BBB+ USD 119.88 2.98 120.45 120.60 -

Dubai Islamic Bank PJSC able Not Rated USD 102.20 5.64 101.14 100.38 -

Dubai Islamic Bank PJSC 2017 Not Rated USD 105.28 2.36 105.70 105.84 -

Emirates Islamic Bank PJSC 2017 Not Rated USD 104.78 2.15 105.18 105.30 -

Emirates Islamic Bank PJSC 2018 Not Rated USD 104.39 2.56 104.65 104.97 -

EMIRATES NBD PJSC 2017 Not Rated USD 104.64 2.35 104.87 105.15 -

EMIRATES NBD PJSC 2023 Not Rated USD 103.39 3.71 103.55 103.04 -

EMIRATES NBD TIER 1 able Not Rated USD 97.69 6.37 97.55 97.64 -

EMIRATES NBD 2014 TIER 1 Not Rated USD 100.69 6.23 100.40 101.22 -

First Gulf Bank PJSC 2016 Not Rated USD 103.51 1.34 103.80 103.79 -

First Gulf Bank PJSC 2017 Not Rated USD 104.71 1.54 105.03 105.15 -

HBME SUKUK CO LTD 2016 Not Rated USD 102.84 1.34 N/A 103.33 -

HSBC BNK MIDDLE EAST LTD 2015 Not Rated USD 101.26 1.10 101.40 101.73 -

Sharjah Islamic Bank 2016 BBB+ USD 104.27 1.29 104.55 104.80 -

MASHREQBANK PSC 2017 BBB USD 95.68 3.68 96.52 96.92 -

NATIONAL BK OF ABU DHABI 2015 AA- USD 100.35 0.65 100.46 100.66 -

NATIONAL BK OF ABU DHABI 2016 Not Rated AED 97.75 3.09 98.50 97.50 -

NATIONAL BK OF ABU DHABI 2017 AA- USD 103.64 1.48 103.92 104.20 -

Qatar Islamic Bank SAQ 2015 Not Rated USD 101.82 0.95 102.06 102.27 -

Qatar National Bank 2015 A+ USD 101.54 1.03 101.74 101.92 -

Qatar National Bank 2017 A+ USD 103.52 1.59 103.79 103.71 -


SAUDI BRITISH BANK 2015 A USD 101.38 1.10 101.72 101.72 -

UNION NATIONAL BANK/ABU 2016 Not Rated USD 104.31 1.34 104.66 104.68 -

Aldar Properties PJSC 2018 BBB- USD 105.14 2.90 105.25 105.37 -

ANKA A SUKUK LTD 2016 Not Rated AED 109.75 3.30 110.14 110.35 -

DAR AL-ARKAN INTERNATION 2015 B+ USD 100.00 10.20 - 100.50 -

DAR AL-ARKAN INTERNATION 2018 B+ USD 97.16 6.73 96.82 98.67 -

DUBAI HOLDING COMM OP 2017 Not Rated GBP 101.78 5.01 102.17 101.25 -



Emaar Properties PJSC 2016 BBB- USD 109.90 1.58 110.32 110.54 -

EMAAR SUKUK LTD 2019 BBB- USD 113.74 3.05 114.22 113.76 -

DP WORLD LTD 2037 Not Rated USD 115.11 5.65 115.82 115.48 -

DP WORLD SUKUK LTD 2017 Not Rated USD 108.85 2.38 109.15 109.39 -

DUBAI ELECTRICITY & WATE 2015 Not Rated USD 101.27 1.09 101.52 101.99 -



EMIRATES AIRLINES 2025 Not Rated USD 100.90 4.39 101.29 101.33 -

GEMS MEA SUKUK LTD able Not Rated USD 112.41 8.09 113.40 113.89 -

Investment Corp of Dubai 2016 Not Rated USD 104.25 1.80 104.49 104.89 -

JAFZ SUKUK LTD 2019 Not Rated USD 114.68 3.33 115.27 115.46 -

KUWAIT ENERGY B- USD 88.00 13.14 88.95 90.85 -

KUWAIT PROJECTS CO 2016 BBB- USD 110.36 2.46 110.58 110.80 -

KUWAIT PROJECTS CO 2020 BBB- USD 127.35 3.74 127.98 126.34 -

MAF GLOBAL SECURITIES 2019 BBB USD 109.25 2.98 109.59 109.23 -

MAF GLOBAL SECURITIES able BB+ USD 108.24 4.67 108.83 108.82 -

MAF SUKUK LTD 2017 BBB USD 107.66 1.86 107.94 108.18 -

MEDJOOL LTD 2023 Not Rated USD 100.34 3.83 100.70 100.53 -

Mubadala Development Co PJSC 2019 Not Rated USD 109.65 3.46 110.07 110.57 -

Mubadala Development Co PJSC 2021 Not Rated USD 114.93 3.05 115.57 115.21 -

Qatar Gas Transport Co Nakilat 2033 AA- USD 116.07 4.76 116.85 117.04 -

Qatar Gas Transport Co Nakilat 2033 A+ USD 115.78 4.97 116.87 117.05 -

Qatar Petroleum 2016 A USD 103.76 3.40 104.14 104.43 -




OOREDOO INTERNATIONAL FI 2016 A- USD 102.87 1.60 103.12 103.28 -




SABIC CAPITAL I BV 2015 A+ USD 101.44 0.93 101.61 101.70 -

TAQA ABU DHABI NATL ENER 2016 A- USD 107.24 1.51 107.55 107.95 -








DIP SUKUK LTD 2019 BB+ USD 101.50 3.88 101.95 101.97 -

BANK OF BARODA/LONDON 2019 Not Rated USD 107.12 3.14 107.61 108.09 -

BANK OF INDIA LONDON 2018 BBB- USD 102.81 2.79 102.93 102.83 -

BANK OF INDIA LONDON 2021 BBB- USD 113.46 3.72 114.06 114.33 -

CANARA BANK LONDON 2018 Not Rated USD 107.81 2.98 107.93 108.00 -

HDFC BANK LTD/BAH 2016 BBB- USD 101.60 2.08 101.79 102.03 -

HDFC BANK LTD/BAH 2018 BBB- USD 101.65 2.43 101.83 101.92 -

ICICI BANK LTD/HONG KONG 2020 BBB- USD 112.78 3.28 113.21 112.83 - *Prices as of 18 February 2015 Source: Emirates NBD Sales & Structuring. Prices are indicative only.

Emirates NBD Equity Reverse Convertibles*

Underlying Stock CCY Current

Price/Strike

Coupon to Investor(flat at maturity)

Investment Tenor

3M 6M 12M

Aldar Properties AED 2.64 12.94% 14.96% -

Abu Dhabi National Energy Co.(TAQA) AED 0.77 10.43% 12.96% -

Arabtec Holding Co. AED 3.15 13.51% 22.96% -

Emaar Properties PJSC AED 7.37 11.59% 16.06% -

Aramex AED 3.30 4.89% 10.16% -

Abu Dhabi Commercial Bank AED 7.64 12.99% 17.26% -

*Prices as of 18 February 2015.Please note all prices above are indicative and subject to internal approvals. Source: Emirates NBD Sales & Structuring What is a Reverse Convertible? A Reverse Convertible is a structured product which allows the investor to benefit from a high return based on the view that the underlying will not decline below its initial level. Mechanism At maturity, there are 2 scenarios:

- If the underlying closes at or above its initial level, then investor receives 100% of the capital invested and the coupon - If the underlying closes at or below its initial level, then investor receives 100% of the capital invested and the coupon minus the

negative performance of the underlying from initial level. In this scenario, investor may incur capital loss. Scenario analysis (ex: Aldar Reverse Convertible on 6 months):

- If Aldar is above its initial level in 6 months, then investor receives 100% + 12.94% = 112.94% of the capital invested - If Aldar declined by -5% from the initial level in 6 months, then investor receives 100% + 12.94% – 5% = 107.94% of the capital

invested - If Aldar declined by -20% from the initial level in 6 months, then investor receives 100% + 12.94% – 20% = 92.94% of the capital

invested

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Emirates NBD Research & Treasury Contact List Emirates NBD Head Office 12thFloor Baniyas Road, Deira P.OBox777 Dubai Aazar Ali Khwaja Group Treasurer & EVP Global Markets & Treasury +971 4 609 3000 [email protected]

Tim Fox Head of Research & Chief Economist +9714 230 7800 [email protected]

Research

Khatija Haque Head of MENA Research +9714 230 7803 [email protected]

Jean Paul Pigat Senior Economist +9714 230 7807 [email protected]

Aditya Pugalia Analyst +9714 230 7802 [email protected]

Anita Yadav Head of Fixed Income Research +9714 230 7630 [email protected]

Athanasios Tsetsonis Sector Economist +9714 230 7629 [email protected]

Edward Bell Commodity Analyst +9714 230 7701 [email protected]

Sales & Structuring

Group Head – Treasury Sales Tariq Chaudhary +971 4 230 7777 [email protected]

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Singapore Sales Supriyakumar Sakhalkar +65 65785 627 [email protected]

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Group Corporate Affairs

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Claire Andrea +9714 609 4143 [email protected]

Investor Relations

Patrick Clerkin +9714 230 7805 [email protected]

Monthly Insights - Emirates NBD€¦ · Head of Fixed Income Research 10.0 8.0. Monthly Insights...

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