MENA Equities Geopolitical risk - impact on stocks and sectors

Summary of MENA Equities Conference Call Industry Overview - Industry: MENA Equities - Focus: Impact of geopolitical risks on stocks and sectors in the MENA region Key Points and Arguments Geopolitical Risks - Geopolitical risks have negatively impacted MENA stocks recently, with a particular focus on the sensitivity of stocks to Cost of Equity (COE) assumptions reflecting country risk premia [2][6][17] - Growth stocks and those with leveraged balance sheets show higher sensitivity to COE changes [2][6] - The financial market impact is expected to remain limited unless conflicts expand to include GCC countries like Saudi Arabia or UAE directly, or block the Straits of Hormuz [2][6] Stock Sensitivity - APPC, Al Rajhi Bank, and Alinma Bank are identified as having the highest price target sensitivity to a 100 basis points increase in COE [2][6] - The Saudi Tadawul index has decreased by 7.1% since the peak at the end of March 2024 [2][6] Foreign Ownership Analysis - The top five overowned stocks in Saudi Arabia are Mobily (Etihad Etisalat), Tawuniya, Arab National Bank, Elm, and Bupa Arabia [2][6][32] - The top five underowned stocks are Saudi Invest Bank, Mouwasat, Saudi Fransi, Rajhi Coop Insurance, and Riyad Bank [2][6][32] - Approximately 35-40% of Emerging Market (EM) funds hold no positions in Saudi stocks, indicating a significant underweight [2][6] Defensive Sectors - UAE Property Sector: Historically acts as a safe haven during geopolitical uncertainty, with average rental yields of 6% in Dubai and 7% in Abu Dhabi [2][6][18] - Healthcare Sector: Considered defensive due to domestic exposure; Sulaiman Al Habib is highlighted as a key player [2][6][19] - TMT Sector: stc is viewed as the most defensive stock, supported by a 5% dividend yield and strong liquidity [2][6][20] Least Defensive Exposures - Al Arabia and MBC Group are identified as least defensive due to their reliance on volatile advertising spend [2][6][20] Consumer Sector Insights - Almarai is seen as a defensive stock within consumer staples, while Americana and Seera are more exposed to geopolitical risks [2][6][22] Industrial and Energy Sectors - ADNOC Drilling and ADNOC Gas are considered defensive in the petchem space, while Kayan and APPC are viewed as less defensive due to their leveraged balance sheets [2][6][25][26] Market Performance Metrics - The report includes detailed market performance metrics around recent geopolitical events, showing varying impacts on indices and commodities [2][6][7] Conclusion - The overall sentiment indicates a cautious approach towards MENA equities, with a focus on identifying defensive stocks and sectors amidst rising geopolitical tensions. The analysis emphasizes the importance of foreign ownership dynamics and sector-specific vulnerabilities in the current market environment [2][6][32]