Equity markets of the Gulf Cooperation Council (GCC) have outperformed most other regions and indices in 2022, and this trend continues beyond the latest earnings cycle.
Using natural language processing algorithms to read millions of words of earnings presentations and analyst Q&A sessions points to the value of IR in building on those gains and building a wider following among brokers and the investment community. Matching language in earnings calls with the developments and trends at work inside and outside the GCC region provides a mix of surprises for some and insights for others. Here are five important things we learned over the past few weeks.
1. Saudi Aramco, the region’s largest company, set a new world record for corporate profitability
The company reported a second-quarter net income of $48 bn, more than that of Apple, Microsoft, Meta and Tesla combined.
Saudi Aramco’s record profit in the second quarter might put the company in a class by itself. But the oil giant was not alone among those listed on GCC bourses performing well. Beyond Aramco, all the region’s equity markets are in positive territory for the year, led by Abu Dhabi (up 14.5 percent), Qatar (up 11.4 percent) and Oman (up 9.5 percent). While the oil market remains tight because of Russia’s invasion of Ukraine, the broader GCC economy is feeling the benefit. This performance cuts across sectors and countries and has led to the GCC resembling a safe haven for global investors.
2. The GCC exchanges stand out among global markets
Against the macroeconomic backdrop of rising interest rates, inflation and fears of recession, overall profitability and sentiment for earnings calls hosted by GCC companies improved. The Iridium GCC Earnings Call Sentiment Index rose 5 percent to reach 35.5 points, up from 33.8 points in the first quarter and a 2.7-point increase over last year. In addition, management sentiment, as expressed during earnings calls, has returned to levels higher than before the outbreak of the Covid-19 pandemic in 2020.
3. Two thirds of companies reporting beat analyst expectations
Saudi Aramco’s record-setting quarterly profit might indicate that market performance is being driven by the energy sector. But published transcripts of calls from the latest earnings cycle reveal a different story: they illustrate a far broader, multi-sector outperformance. In particular, companies in the industrials, communications and materials segments all showed a significant upward trend in sentiment and performance.
4. Management teams are voicing more caution and indulging in less hyperbole and grandstanding
Instead of basking in the glow of their quarterly successes and dwelling on the underlying reasons for the positive results, senior managers spent more of their call time detailing expansion and capital spending plans and providing long-term assessments of the markets.
This is a highly desirable development for analysts and investors. Similarly, management’s ‘confidence’ level (a measure of strong and weak language) declined for the second consecutive quarter, indicating greater realism in the face of growing uncertainty.
5. Sell-side analysts are firmly engaged with the regional market opportunities
Among JPMorgan’s top 10 stock picks from central Europe, the Middle East and Africa, five are Saudi companies. Regional firms are responding as well: Emaar Properties, a leading UAE property developer with a $13.7 bn market cap, has called a shareholder meeting to increase its foreign ownership limit to 100 percent, which could result in an upward weighting of MSCI and FTSE Emerging Market indexes and further passive inflows – another positive step toward getting global investors’ attention.
While GCC earnings calls paint a broadly positive picture, risks remain. Analysts and investors have identified ESG as a significant barrier to investment in the GCC, demonstrating that regional firms remain at an early stage in their ESG journey.
And while the number of companies publishing IR materials, including earnings presentations and transcripts of their calls, is increasing, it is still far from universal. Firms that update investors without making information publicly available risk being accused of selective disclosure, and the regulatory penalties that could bring down the line.
Overall, however, the trends revealed by the most recent earnings cycle show that the GCC region’s listed companies are performing well, with a relatively upbeat outlook.
And their management and IR teams are to be congratulated: our sense is that we are witness to a new high point in IR maturity and disclosure levels for the region.
Oliver Schutzmann is CEO of Iridium Advisors