Mideast markets brace for rocky week as global worries weigh

Reuters, Friday 9 Sep 2011

In the absence of compelling local factors, it's volatile global exchanges that look like determining Middle East stock performances in the coming weeks

Egypt's Bourse, which has seen the worst losses on regional unrest, looks towards another uneasy week (Photo: Reuters)

Middle East equity markets are braced for another rocky week, with volatile global exchanges likely to dictate direction in the absence of compelling local factors to distract investors from negative news about the world economy.

The focus on the global economy means a declining pool of active traders is not discriminating much between the fundamental factors behind individual Middle East stocks. Instead, it is trying to ride the ebbs and flows of global sentiment to make a quick profit on the most liquid names.

Long-term investors and funds remain largely inactive, so markets are listless and will lack direction until a clearer picture emerges of the chances of a U.S. recession and the ultimate consequences of the euro zone debt crisis.

"People are sitting on the sidelines and don't want to make a serious commitment because uncertainty and volatility are very high," said Shakeel Sarwar, head of asset management at Securities & Investment Co in Bahrain.

Regional markets moved little over the summer months and so recent declines have been less savage than those experienced internationally. But 2011 has been tough for investors and brokers alike.

Volumes in Kuwait have fallen by more than half, while this year's turnover on the United Arab Emirates bourse seems poised to fall further from a six-year trough in 2010.

All regional bourses are in the red for 2011, with Egypt the biggest loser, falling by more than a third. Qatar has proved the most robust, dipping only about 4 percent; it has been helped by double-digit economic growth projections for Qatar.

The negative performance comes despite Gulf companies' profitability rising by about 20 per cent in the first half of 2011, said Sarwar.

"Third-quarter results might provide some respite, but the key variable is the health of the global economy."

The third-quarter corporate results reporting season will start in about a month, but for now investors have a shorter-term horizon.

"Q3 results are still a little way off, but Q2 was pretty strong for U.S. corporates and investors will be looking very carefully at whether the perceived slowdown has already caught up with companies -- regional investors will be doing the same in the Gulf, especially in cyclical, commodity-driven stocks," said Hashem Montasser, managing partner at Frontlane Capital, a Dubai-based asset management firm.

Signs that some foreign funds are withrawing from Gulf markets are a major dampener for stocks, analysts said.

"Local investors, if they sell one stock, they will buy another the next day," said Robert Pramberger, acting head of asset management at Doha-based investment company The First Investor.

"It's international investors driving the market. If this selling finishes within a week or two, we could see the market moving up again."

He predicted the services and utilities sectors as well as other stocks based on local demand would outperform in Qatar, with the same trend also playing out in Saudi Arabia.

The Saudi cement and retail sectors are up 20 and 11 per cent this year, while petrochemicals -- often used as a proxy for Saudi Arabia's oil industry, since petrochemical demand is closely tied to crude oil prices and the global economy -- are down about 7 per cent.

UAE stocks remain in the doldrums, with Dubai's index some 80 per cent below a 2008 peak; the emirate's corporate debt problems and property price crash still haunt investors.

"The economic environment has improved but the UAE needs broader, deeper stock markets which are more representative of the economy," said Julian Bruce, EFG-Hermes director of institutional equity sales.

"The market is dominated by real estate and banks and so there's not a great deal of variation to allow investors different exposures, especially if you feel a considerable portion of banking activity is also real estate-related.

"It is bouncing along the bottom, so there's not much downside, but it will take a long while before there is any meaningful recovery.

Low turnover is expected again to plague Egypt's market, with political uncertainty limiting trade.

"With more demonstrations planned for Friday...we will continue to see low volumes next week," said Nader Khedr, investment and market analyst.

Activists are building momentum for a mass protest against military trials of civilians this weekend.

Trading has been modest since a popular uprising ousted former president Hosni Mubarak in February, and Cairo's benchmark index slumped to a two-year low in early August, although it has since rebounded about 6 per cent.

A previously announced, LE2.4 billion (US$403 million) deal in which Sweden's Electrolux AB acquired a majority stake in Egyptian appliance maker Olympic Group was executed on Tuesday.

"The deal was a good sign of confidence in the market when it was signed, but foreigners won't come back in numbers if there is still no political stability," said Mohamed Shalaby, a trader at Cairo Capital Securities.

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