MOSCOW (MRC) -- Across the Gulf, petrochemical companies' earnings are set to suffer following the deep decline in oil prices. However, heavy state spending means most firms in other sectors in the region are likely to do just fine, said Tradearabia.
Petrochemical product prices are closely linked to oil prices, while regional producers buy subsidised feedstock, so higher crude prices provide them with better margins; cheaper oil removes that advantage.
The damage to petrochemical firms will be most keenly felt in Saudi Arabia, because such firms account for about a third of the Saudi stock market's capitalisation. In the past three months, analysts have slashed their average earnings growth forecast for the Saudi petrochemical sector this year to 13 per cent from 25 per cent.
They do not see much of a slowdown for other Saudi sectors, however. Their forecast for earnings growth across the entire stock market has dropped only slightly, to 12 per cent from 17 per cent; most of that fall is due to petrochemicals.
The two largest GCC economies, Saudi Arabia and the UAE, will probably run budget deficits. But the huge fiscal reserves that they have built up over the last several years mean they will easily be able to keep spending high.
According to Thomson Reuters data, analysts have only marginally changed their average forecasts for 2015 corporate earnings in the UAE and Qatar over the last three months. Saudi Arabia has seen a significant downgrade, but that is almost entirely due to the petrochemical sector.
Corporate earnings in the GCC's two smallest states may be hit hard by oil at USD70. Bahrain was already running a budget deficit when oil was above USD100; Oman is now almost certain to slip into the red, and its fiscal reserves are relatively small.
Spending cutbacks therefore look likely in both countries. Last week, an advisory body to Oman's government suggested sweeping spending cuts and tax rises to cope with cheaper oil.
The outlook for the total value of 2015 Saudi cororate earnings has been cut by four per cent, mostly because of petrochemicals but also because of a shock restatement of earnings at telecommunications operator Etihad Etisalat (Mobily) in early November.
The corporate earnings in other big GCC markets, where petrochemicals have smaller weightings, are likely to suffer less. Over the last three months, analysts polled by Reuters have actually increased their average forecast for the combined 2015 earnings of Dubai's 13 leading listed companies by three per cent.
As MRC wrote before, Saudi Aramco announced that its downstream investments would exceed USD100 billion over the next decade, as global demand for oil rises by a quarter in the next 25 years.
MRC