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Record Revenue in Kuwait While Saudi Arabia Poised For Further Growth

Middle East : 26 February 2012

Kuwaiti Revenue Forecasted to Surpass $100 Billion in Current Fiscal Year

Kuwait is set to report the nation’s highest revenues ever posted at the close of this fiscal year, according to an economic report. The large revenue and surging budget surplus are driven by rising oil prices and higher production.

The National Bank of Kuwait (or NBK) reported that Kuwaiti revenues for the fiscal year ending March 31 should surpass $100 billion, coming in at a record high between $101 and $104bn.

NBK noted that oil revenues make up about 95 percent of the record totals, with average Kuwaiti oil prices sitting around $109 per barrel, significantly higher than the $60 per barrel budgeted price.

Kuwait’s cumulative surpluses over the last twelve fiscal years are more than $200 billion, and NBK forecasted that the surplus for the current fiscal year will surpass $41 billion.

Kuwait reported record high earnings last year, with a total of $79 billion in revenue. The highest budget surplus was recorded in the 2007 to 2008 fiscal year, when a $33.5 billion surplus was posted.

Although Kuwait has a production quota of 2.2 million barrels per day (bpd) as per the OPEC agreement, the nation has been pumping about 3 million bpd.

According to official data, over the opening three quarters of this year Kuwait has posted $77 billion in revenues. That total represents a 41.7 percent surge from last year’s figures and a vast majority of the boost has come from oil.

Spending has increased over the same time period. Kuwait’s spending has tripled over the last six years, coming in at about $70 billion.

Shaikh Salem Abdul Aziz Al Sabah resigned from his position as governor of Kuwait’s central bank in protest of the massive surge in public spending.

Alkhabeer Capital Forecasts Growth For 2012 in Saudi Arabia

The low debt profile, increased spending on infrastructure and rising investments in Saudi Arabia has pushed the kingdom to the forefront of Frontier economies, according to a recent report by Alkhabeer Capital. Saudi debt equals 58 percent of the GDP, and investments total 23 percent of the kingdom’s GDP.

The forecasted growth will result from the 16 percent increase in development expenditures, as written into the budget and resulting from the government’s economic stimulus package totalling $133 billion.

Expectations for Arabian crude oil performance in 2012, as stated by Alkhabeer, take into account a 2 percent rise in the US dollar and a 5 percent drop in oil prices.

In general, investors interested in Frontier economies watch the movement of currency and inflation rates. Because Saudi Arabia has a stable currency tied to the US dollar, and a supply of money to offset inflation on imports, the kingdom is in a unique position. Inflation is not expected to go above 4 percent for 2012, when Alkhabeer’s outlook on oil prices and the measures that Saudi banks have used in the past are considered.

Saudi equities should post good returns with only modest risk, according to Alkhabeer Capital.

Saudi Arabian equities remain a top pick from among the Frontier world equities, with 3 percent yields on dividends and trading at an 11.5 P.E. The price appreciation potential for Saudi equities sits at 17 percent.

Certain sectors with a domestic focus are more likely to outperform over the course of 2012, including retails products and items such as food and cement.

Other Alkhabeer recommendations include equities in Qatar, equities focusing on the logistics and hospitality sectors in Oman, and high dividend stocks in Kuwait.

As consumption grows slowly, currencies experience slower depreciation and supply grows more rapidly, the mid to long-term commodities outlook is expected to be unchanged or possibly negative.

Alkhabeer forecasted a 5 percent decline in the price of oil based on existing supply, a slight increase in the value of the US dollar and slower consumption across the globe.

Investors looking for secure returns can find a wide range of opportunities within the Alkhabeer Capital report, covering both global and regional investments, according to CEO and Executive Director Ammar Shata.

The global economy is expected to grow by around 2.5 percent in 2012, with China contributing over 40 percent of the total growth in the world economy. Forecasts state that Europe’s share will drop by about 0.6 percent and the US will post growth of no more than 1.5 percent. Meanwhile the economy of the Emerging world is forecasted to experience 5.1 percent growth.

Once the estimates on economic growth were considered, along with reviews of asset classes, Alkhabeer Capital recommended hunting for bargains to garner the highest levels of return, taking into consideration the investor’s existing risk tolerance level.

In the developed world, equities in the UK topped the list, presenting the potential for a 30 percent price appreciation, with 3 percent dividend yields and trading at a 10.5 P.E.

In the emerging world, equities in Russia have been named as the best buy, trading at a 9.5 P.E. and presenting a 2 percent dividend yield and the potential for a 32 percent price appreciation.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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