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|04 September, 2018

Monthly markets review: Egypt and Abu Dhabi's stock markets outperform in August

Analysts positive on Egypt's outlook, banking stocks lead Abu Dhabi higher

Electronic boards displaying stock information are seen as investors look on on the floor of the ADX Abu Dhabi Securities Exchange stock market.

Electronic boards displaying stock information are seen as investors look on on the floor of the ADX Abu Dhabi Securities Exchange stock market.

REUTERS/Stringer .

Most of the region’s stock markets declined in value during August, which was a quiet month in terms of trading volumes as many markets closed for a week for the Eid Al Adha holidays.

United Arab Emirates

Abu Dhabi’s Securities Exchange was one of the few markets to post gains in August, increasing in value by 2.62 percent. In a press release issued on Sunday, 2 September, ADX said that its general index had increased in value by 13.4 percent since the start of the year, adding that the market capitalization of the companies listed on the exchange had increased to 495 billion dirhams ($134.8 billion) – an increase of 7.5 percent from the combined value of 461 billion dirhams of the firms on the exchange at the start of the year.

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ADX’s chief executive, Rashed Al Blooshi, said that the exchange “recorded one of the highest dividends yields in the world” of 5.8 percent, with its constituent companies distributing 23.4 billion dirhams worth of cash dividends to 406,000 investors.

The Dubai Financial Market dropped in value by 3.92 percent in August. The banking sector in the United Arab Emirates was the main driver for both markets, pushing Abu Dhabi’s index higher and Dubai’s index lower.

“Outperformance in Abu Dhabi was broadly led by one particular stock, First Abu Dhabi Bank (+8.8 percent), which has a weight close to 45 percent in the index,” Nishit Lakhotia, head of research at Bahrain-based investment bank SICO told Zawya via email.

“The bank reported strong second quarter earnings and revised their earnings guidance upwards. However, we believe the stock is trading ahead of its fundamentals now and accordingly should see some profit-booking, which should weigh down on the index,” he added.

“Within Dubai, (the index) was weighed down by Emirates NBD, which declined 10 percent led by concerns regarding (the) Denizbank deal impact after Turkish Lira devaluation. We believe the reaction is exaggerated and overall see (the) Dubai market bottoming out and heading upwards in the coming months.”

Lakhotia said that foreign investors have been selling positions in the Dubai market for the past 12 months and still seem concerned about its prospects, but added that “this trend should change in the coming months”.

Saudi Arabia

Saudi Arabia’s stock market was the main loser in the region last month, falling 4.18 percent.

The Saudi index has gained about 10 percent so far this year, boosted by inflows of foreign funds in anticipation of Riyadh joining emerging market indices next year. Recent exchange data indicates those inflows have slowed, but not halted, as stock valuations have risen.

“The Saudi market witnessed weakness and perhaps some profit booking after the earnings season ended early in August. In addition to that, the Turkish Lira crisis also spooked investors during the month,” Lakhotia said.

“Both Saudi retail and foreigners (mainly through swaps) were selling in August while domestic corporate (investors) were on the buy side.”

He said that he expects no major gains or losses to be made in September, but for momentum to pick up again in the fourth quarter.

“Brent continues to remain above $75 levels, which should also help,” Lakhotia said.

Egypt

Egypt’s stock market was the best performer among its peers in the region during the month of August, rising 2.75 percent.

Cairo has been conducting reforms imposed by the IMF-backed austerity plan in 2016 as part of the country’s access to a $12 billion loan programme which aims to revive the economy.

“After a quiet period in the summer (July, most of August) we are finally witnessing an uptick in turnover and performance,” Mohamad Al Hajj, equities strategist at EFG Hermes, told Zawya in an email interview last Thursday.

“This is justified as Egypt has posted very decent earnings growth numbers, and is looking among the cheapest in emerging markets on a PEG (price/earnings to growth) ratio basis, owing to superior EPS (earnings/share) growth expectations,” Al Hajj said.

“We remain bullish on Egypt and see decent upside ahead of us. Our favorite theme remains food names (companies) where we see continuation of a recovery. Commercial International Bank is also looking cheaper on P/B (price-to-book ratio) following recent pullback and we expect this to lead to greater interest in the name, especially as growth outlook is strong.”

Credit ratings agency Moody’s Investors Service had raised Egypt’s credit outlook to positive from stable on Wednesday, citing progress in implementing the IMF-backed austerity plan.

“We think the positive momentum will continue, especially after Moody’s raised the country’s credit outlook,” Reda Gomma, Head of Equities at Mashreq Capital told Zawya via phone on Thursday.

“We see a high probability that the Central Bank of Egypt (CBE) cuts interest rates by the end of the year, which would reflect positively on the stock market. There is doubt about the Fed raising interest rates in December, which might also support the Central Bank of Egypt decision to cut rates. One of the externalities that has stopped the CBE from cutting rates during the course of 2018 is the increase in the interest rate on the US dollar.”

Kuwait

Kuwait’s stock market dropped 0.68 percent during the month of August.

According to a Reuters poll of 13 leading Middle East fund managers, 31 percent now expect to raise equity allocations in Kuwait and 8 percent to reduce them, down from ratios of 62 percent and zero in the previous poll, and the least positive balance since May.

Other GCC markets

Qatar’s market gained 0.62 percent, Bahrain’s index dropped 1.49 percent and Oman’s index gained 1.91 percent.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

( gerard.aoun@thomsonreuters.com )

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