May 12 2012
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How investors can reap gains in a quiet summer market
Saturday, May 12, 2012
This year, ‘sell in May and go away’ might not be the best strategy for investors, as there could be a chance for profitable trades ahead of the MSCI review of the UAE markets in June, which could result in them being included in global emerging market indexes.
Normally, May and June are slow months on the markets because of the summer holidays, Ramadan and Eid. Over the last six years, in June the markets have dropped between negative 0.70 per cent to -9.9 per cent, with an average of -4.4 per cent.
Those who see 2012 as the year for economic recovery advise long-term investors to view the summer as a period of consolidation.
Marwan Shurrab, vice president and chief trader at Gulfmena Investments, agrees. “I would say long-term investors would prefer to position themselves into weakness,” says Shurrab. “So the more weakness we see in the market — like we are seeing these days — the more positioning that you will see from long-term institutional investors.”
But Saleem Khokhar, head of equities at National Bank of Abu Dhabi’s asset management group, is of the view that investors should consider reducing positions and lowering risk as the market enters the traditionally slower and less liquid summer months. He points to weak and volatile financial and economic data from the Eurozone, the US and emerging markets as another reason for caution.
It’s more the short-term traders, says Shurrab, who would be better off to reduce their risk at current levels, while waiting to benefit from the volatility in international markets. For those willing to play the summer market, fund managers recommend a mix of defensive and some selective blue chips, which are expected to be resilient in a low trading volume environment.
According to Qaqish, aviation is one of the sectors that should announce strong earnings after the period of summer. He points to Air Arabia, that announced above estimates earnings for Q1. Another defensive stock that will attract investors is the fast growing Du (Emirates Integrated Telecommunications Company), he says.
Khokhar’s preferred country picks are Saudi Arabia, Qatar and the UAE. He is looking at banking, telecom and selective real estate names while petrochemicals are expected to perform during the second half of the year.
“Stocks that an investor should consider owning, especially if markets fall further, include Emaar and First Gulf Bank in the UAE, Yanbu National Petrochemical Company and Mobily (Etihad-Etisalat Company) in Saudi Arabia and Industries Qatar and Qtel (Qatar Telecommunications) in Qatar. All are fundamentally sound stocks that should provide downside protection over the summer months whilst still allowing investors to participate in subsequent rallies.”
Despite expected weakness, it should be remembered that the GCC region will continue to benefit from strong infrastructure and project spend, safe haven status due to the Arab Spring and a resurgence of confidence among local investors.
Shurrab is looking at stocks in Saudi Arabia, the UAE and Egypt and includes infrastructure, banking and real estate names.
“Obviously, Saudi is the biggest market and it would contribute to the biggest portion of our portfolio,” he says.
“In Saudi Arabia, the most attractive for the summer [are] mainly infrastructure and banking stocks.”
The Saudi Cement Company, Yamama Cement and Southern Province Cement, Shurrab says, are “very profitable” infrastructure stocks, with strong expectations of growth due to shortage of cement in Saudi. In the banking sector, he prefers Al Rajhi Bank, which is expected to benefit from government spending on infrastructure projects. He also put Saudi Hollandi and Samba to the banking stocks list.
In the UAE, Tamweel is one of his favourites due to the restructuring of the company and the potential for it to benefit from a future pick-up in the real estate market. He adds Emaar to the list as another beneficiary of the continuing economic recovery in the coming year.
He is also focusing on the Egyptian market where there is an expectation that the market will recover after the presidential election. His favourites there include Orascom Construction Industries.
By Gaurav Ghose?Financial Features Editor
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