Aug 09 2012
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With regional markets up strongly despite the Ramadan lull, analysts are prepping for a bull-run post-Eid.
Dubai has jumped two percentage points since July to become the Gulf region's best performing market, rising nearly 15% year-to-date.
Regional markets are clearly taking their cue from global markets, which are rallying in the hopes that the European and American central banks will rescue their respective economies.
While some leading analysts believe the cult of equity is dying over the long term, in the short-term, some analysts are starting to see opportunities.
"What we have here to quote Cool Hand Luke is 'a failure to communicate'," noted Brian Belski, analyst at BMO Capital. "Investors clearly have confidence issues this year and that's why you've seen these sharp moves to the upside and the downside. We continue to think we're on the verge of the next great bull market."
While the Gulf's economic fundamental remain robust over the past year or so, their markets have trailed the global gloom. But it appears that the markets are ready for a breakout session.
"We anticipate the improvement in credit conditions that we have seen in the first two quarters, particularly in Saudi Arabia, will continue into next year, providing the base for broad based asset inflation and re-rating of the overall market (although bank NIMs will come under pressure as competition increases)," noted Emad Mostaque, analyst at Religare Capital, the emerging market bank. "Although the Egyptian market is still up 39%, it has ample room for further upside once international aid comes through and foreign investors return."
Earlier in the year, Mr. Mostaque believed MENA markets will under-perform emerging market, but now he has altered his view.
"We believe this trend will now reverse and expect MENA to outperform global and emerging peers as energy prices move from being stimulatory to being a drag (look at Euro-denominated Brent!) and top line downgrades continue. Saudi Arabia is likely to perform worst in the short-term, but has the most long-term upside."
Saudi Arabia is coming off a strong July when the index rose 1.68%. The Tadawul has now risen 8.35% till August 8, which is commendable as these are the slow days of Ramadhan and the country is preparing for an eight day Eid holiday.
However, volumes are dialling down due to the summer lull. In July volume decreased 8% month-on-month in the GCC while value traded rose 1% to
"This was on the back of 36% month-on-month drop in volumes and 24% decrease in value traded in June," noted Markaz in a report. "Saudi Arabia, which accounted for 50.26% of GCC's total volume traded, witnessed a 2% month-on-month increase in value traded."
Meanwhile, Dubai's breathless rally is starting to trigger market indicators. While the GCC Markaz volatility index was virtually flat in the region ion July, risk in Dubai rose 62% for the month.
Still, both the Dubai and Saudi markets have exceeded last year's value traded with full five months to go in the year.
Funds are taking note. EFG-Hermes research shows net redemptions from Gulf funds eased further in July, with Saudi Arabia seeing the largest turnaround.
"Qatar stood out as the only market to see increased outflows (albeit modestly so), resulting in it recording the highest outflows for the month," noted EFG-Hermes analyst Fahd Iqbal.
At the start of the year, most analysts had been predicting Qatar to out perform other regional markets, but the Qatar Stock Exchange Index was in the red, down 4.23%.
But this rally has not been just about Dubai and Saudi Arabia - other markets have also picked up. Despite massive political issues, Egypt rose 2.23% last month and has been the best performing market in the region.Meanwhile, Muscat Stock Market index was up nearly 2% last month.
Oil prices have also held up remarkably well after falling rapidly immediately after the first quarter. Since its sudden dip to $90 per barrel, Brent crude has shot back up to $109 per barrel, boosting regional markets.
The MENA and especially Gulf bourses appear poised for a breakout but a sentiment could turn quickly. The global economies are far from resolving their structural issues and if doubts persist about the ability of the European Central Bank and the Continent's key economies to fix the eurozone, expect blood in the markets.
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