21 March 2017

Middle East equity markets put in a mixed performance in February, with bourses in Saudi Arabia, Dubai, Kuwait and Egypt slowing down on profit taking.

Yet nearly two-thirds of regional fund managers expect to increase their allocations to Middle East markets and none plan to trim their exposure, according to a Reuters poll.

Saudi Arabia’s main bourse fell 1.8 percent in February, its second successive monthly decline. The kingdom’s parallel, “Nomu”, stock market also launched last month. This has less rigorous listing requirements and is aimed at attracting small and medium-sized businesses to help deepen the kingdom’s capital markets. Seven companies listed on the fledging bourse in February, which was volatile in trading, a typical characteristic of small markets.

“We expect markets to drift sideways due to the lack of catalysts in the form of corporate earnings,” Kunal Damle of Securities & Investment Company (SICO) Bahrain told Trading Middle East, an Thomson Reuters online forum, earlier this month.


Kuwait loses momentum

Kuwait’s market rallied in January, surging 18.86 percent, but failed to maintain this momentum in February, falling 0.7 percent last month.

Profit-taking pressured many stocks, especially blue-chip.

Heated political bickering between parliament and government in early February made investors cautious and stalled the early-year stock buying spree.

Kuwait’s bourse also published draft rules on over-the-counter (OTC) trading to regulate sales of shares not listed on the exchange.

“OTC Trading is an important tool that is offered across the modern exchange markets, and Boursa Kuwait is keen to develop and execute modern strategies that in turn will create an exchange that operates according to international standards,’ Khaled AlKhaled, chief executive officer of Boursa Kuwait said in February.


Qatar up, but funds wary

Qatar may have been February’s second best performing Gulf bourse, gaining 1 percent, but regional fund managers are downbeat on Doha - 62 percent told a Reuters poll they expect to reduce their market exposure.

There are two main reasons for this pessimism; passive fund inflows following Qatar’s upgrade to FTSE Secondary Emerging Market will likely cease in March, while the end of the dividend season in the coming weeks may spark a sell-off because investors no longer need to hold these stocks to qualify for the payouts.

Credit ratings agency Moody’s noted in February that a proposed merger between three Qatari banks, which is at due diligence stage, would be beneficial to the trio, but will likely face considerable integration challenges.

"The merged entity between Masraf Al Rayan, Barwa Bank and International Bank of Qatar would help to rebalance the Qatari banking sector," said Nitish Bhojnagarwala, an assistant vice president at Moody's.


Egypt slides on stamp duty news

Egypt’s market was the worst performer among the major Middle East bourses, falling 5.8 percent in February.

Funds have turned more bearish on Egyptian shares, according to a Reuters poll. The poll conducted at the end of February showed that 38 percent expect to cut their allocations compared to 23 percent who wanted to cut their allocations in last month’s poll.

At the end of February, the market fell after Reuters reported the finance ministry would recommend introducing a stamp duty on stock transactions for both sellers and buyers.

Early in March, Egyptian Finance Minister Amr Al Garhy told Reuters he would propose a duty starting at 1.25 Egyptian pounds ($0.08) per 1,000 to the government, rising to 1.5 pounds in the second year of implementation and 1.75 pounds in the third.

The proposed gradual introduction of a stamp duty, which would reduce the impact on trading, helped boost the market.


UAE traded sideways

Dubai’s index fell 0.3 percent in February and Abu Dhabi was also little moved, although this steady performance masked considerable intra-bourse divergence among stocks.

“Earnings did have a major effect on trading during the month, some were surprising others were disappointing, yet investors managed to maintain a level of comfort when it came to increased volatility,” Marie Salem, director of capital markets at FFA Dubai, told Trading Middle East on Sunday 12th of March.

“Real estate companies, mainly blue-chips like Arabtec, Emaar and Damac had a huge influence on volumes regardless of whether the results were good or bad.”

Arabtec weighed on Dubai after the construction firm reported a widening fourth-quarter net loss and that its board was seeking shareholder approval for 1.5 billion dirham ($408.4 million) rights issue. The firm then rebounded in late February, also helping the market rise, after the it received regulatory approval to increase its capital.

As a whole, Middle East equity markets put in mixed performances in the month of February, with many investors remaining on the sidelines.
Moving forward, the U.S. Federal Reserve raised in mid-March the target overnight interest rate by 25 basis points to a range of 0.75 percent to 1.00 percent. Saudi Arabia, the United Arab Emirates, Kuwait and Bahrain's central banks raised interest rates within hours of the U.S. Federal Reserve's rate hike, so this will be the main focus for attention in March.

© Zawya 2017