DUBAI/CAIRO: A construction boom in Saudi Arabia and hopes for an index upgrade in Qatar and the United Arab Emirates signal a positive week ahead for Gulf markets.
But Egypt, where corruption probes have rattled investors, appears set for a volatile week as companies unveil turmoil-hit first quarter results.
Influential index complier MSCI will announce in June whether it will upgrade Qatar and UAE from the "frontier markets" category to emerging market status. The move could open up the countries’ bourses to multibillion dollar liquidity and drive index fund investments.
"MSCI hype is picking up, the general backdrop looks pretty positive for the region –issues over Q1 have been dealt with and are largely over," said Tarik Lotfy, head of MENA equities at Arqaam Capital.
"People are now positioning themselves ahead of the announcement."
Rami Sidani, head of investments at Schroders Middle East, said the UAE market has scope for gains with some stocks considered undervalued.
"The UAE market is very cheap, it’s definitely at a severe discount compared to the region," he said, adding the market had not priced in the full potential of an MSCI inclusion.
Market players are ambivalent about the chances of an upgrade for the UAE, partly due to the late implementation of the Delivery versus Payment settlement system.
Tough quarter in Egypt
Egyptian shares are expected to remain near two-year lows on weak volumes as investors pore over company results for the first three months of the year, when political turmoil brought much of the economy to a halt.
Egypt’s benchmark index fell to 4,878 points on May 8 to its lowest close since April 2009.
"Everyone is waiting for first-quarter results, because it should be one of the toughest quarters," said Radwa El-Swaify, an analyst with Beltone Financial.
Analysts said investors will watch for guidance on company plans for the coming quarters, a period when economic activity is anticipated to stay anemic.
Among the biggest companies reporting next week is Orascom Telecom, which is in the spotlight as it spins off a new company after Vimpelcom’s takeover of its main assets.
"The spin-off of the new company should trigger some buying activity," CI Capital wrote in a research note.
"Moreover, after a six-month wait, the anticipated announcement of Djezzy’s valuation range expected at the end of this month should reflect positively" on OT’s performance."
OT’s Algeria unit Djezzy, which the Algerian government wants to nationalize, is among OT assets that Vimpelcom is taking over as part of a deal that closed in mid-April.
Building boom seen in Saudi
The Saudi construction sector is expected to make gains as government funds from a $93 billion March handout from the king filter down.
King Abdullah’s announcement, which amid protests in the region, included $66.7 billion for building 500,000 new homes in the kingdom.
"Any stocks that have to do with construction, like cement companies, we see doing well," said Yousef Kassantini, an independent financial analyst based in Riyadh. "The king’s speech encouraging citizens to own more houses will basically cause the construction sector to rise.
"Now, people will start borrowing and banks will lend. Business will be good for Q2."
Kassantini forecast the Saudi index will test the psychologically important level of 7,000 points next week. It closed at 6,722.4 points on Wednesday.
