GCC Investor Sentiment Rebounds After Q2 Coronavirus Hit

Investor confidence in Saudi Arabia and the UAE took a big hit as the region was hit by the coronavirus pandemic but both countries showed signs of recovery the following quarter.

According to new research, sentiment measured in the Arab states during quarter two of 2020 were at or near their lowest in the past five years in the wake of the global oil price crisis in 2014.

With a 34 point decline in sentiment, Saudi Arabia was the most impacted during that quarter – other countries in the region experienced a decline of 20 to 25 points for the same period.

However, Saudi Arabia also recovered by the most points, 15, in the third quarter of 2020 compared with a 9 point improvement in Qatar and the UAE.

Kuwait had the least decrease in sentiment during quarter two of 2020 but sentiment there declined further in quarter three, contrary to the other countries in the region.

The research by Iridium Advisors, a management consulting firm and advisor on investor relations based in Dubai, also showed that not all sectors were equally impacted by coronavirus in the first two quarters.

The consumer discretionary sector, which includes automotive and apparels and other non-essential products and services, had the largest drop in sentiment (by 44 points in quarters two and three combined) followed by real estate which decreased by 35 points during the past two quarters. Consumer staples and utilities related sectors, being essential to daily living, sustained coronavirus well enough with sentiment levels remaining almost unchanged from the beginning of the year.

Iridium Advisors said it used the Natural Language Processing (NLP) algorithm of its artificial intelligence (AI) platform, the Iridium Quant Lens, to quantify corporate sentiment during the first two quarters and a half of 2020 by analysing quarterly earning calls.

It showed the number of coronavirus-related and health-related words used – for example lockdown, health, safe, spread or infection – significantly rose from their historic usage in quarterly earnings calls.

Sentiment expressed during those earning calls also dropped, with the Iridium Sentiment Index (which measures sentiment on a scale of -100 to +100 following an analysis of over 550 earning calls and more than 3.2 million word) averaging +2 for calls made during the second quarter of 2020, a decline of 25 points from the first quarter levels and the lowest level seen over the last five years, according to the report.

It added that negative sentiment was indicated through more frequent usage of negative words - concerns, disappointing, losses - versus positive words and weak or unclear language.

ridium Advisors also said it has used four different Machine Learning algorithms to calculate the value of investor relations (IR) to corporations, based on the classifications of IR Agnostic, IR Basic and IR Emerging.

The company said this aspect of business is often overlooked by corporate heads but the algorithm indicates that it adds up to 24.2 percent of GCC bank value valuations.

Oliver Schutzmann, CEO of Iridium Advisors, said: “Many boards and management teams in emerging markets have not yet invested sufficiently in investor relations because they do not fully understand the value it adds. To this background, we sought to take a scientific and systematic approach to show how the business value they create can be translated into market value, and thereby quantify the value of investor relations.”