Saudi Arabia will emerge as the leading Frontier economy with a lower debt profile (total debt 58 percent of GDP), higher investment (23 percent of GDP) and rising infrastructure spending, Alkhabeer Capital said in its 2012 Economic Outlook report. Saudi Arabia's growth is mainly derived from an expected jump in budgetary development spending (up 16 percent) as an outcome of $133 billion economic stimulus package announced by the government. Al-Khabeer's forecast for Arabian crude for 2012 has taken into account a 5 percent decline in prices along with a 2 percent appreciation for the us dollar. While an investor in a Frontier economy is concerned primarily with currency movement and inflation, Saudi Arabia is unique because its peg with the US dollar means stable currency while monetary measures – money supply - is used to ease imported inflation. Based upon Alkhabeer Capital's oil price outlook and past Saudi central bank measures, it can be concluded that 2012 inflation is unlikely to exceed 4 percent. Alkhabeer Capital forecast good returns with modest risk for Saudi equities. Trading at a PE of 11.5 and yielding 3 percent dividend, Saudi equities are the best pick amongst Frontier world, with a price appreciation potential of 17 percent. Based on our global growth expectations, we believe that sectors which are domestically focused such as cement, food and retail are likely to be outperformers this year. Moreover, Alkhabeer Capital recommends high dividend Kuwaiti stocks, selected equities in Omani hospitality & logistics sector and Qatari equities. Slower growth in consumption, higher growth in supply and lesser depreciation in the value of currencies suggest medium to long term outlook for commodities at flat to negative. Based upon additional supplies, a modest appreciation in the US dollar and a slowdown in global consumption growth, Alkhabeer Capital expects oil prices to shrink by 5 percent in 2012. Ammar Shata, Executive Director & CEO of Alkhabeer Capital, said the report "identifies a range of investment opportunities both regionally and globally where investors can still secure a return on their investments." Europe is expected to shrink by 0.6 percent, USA unlikely to post higher than 1.5 percent growth and the Emerging world likely to post 5.1 percent growth; the global economic growth is expected to close around 2.5 percent for the year 2012, wherein China may contribute more than 40 percent of total global economic growth. After reviewing all the asset classes and taking into account economic growth estimates, Alkhabeer Capital concludes that bargain hunting in equities is likely to generate the most optimum return depending on the investors' appetite for risk. Trading at a PE of 10.5 and yielding 3 percent dividend, UK equities are likely to be the best pick amongst the developed world, with a price appreciation potential of up to 30 percent. Trading at a PE of 9.5 and yielding 2 percent dividend, Russian equities are expected to be the best pick amongst emerging world, with a price appreciation potential of 32 percent.
