CAIRO/DUBAI: Egyptian real estate stocks will get some support next week after billionaire Prince Alwaleed bin Talal signed a deal with the government to resolve one of a string of land disputes that have bedeviled the sector.
Developers have been reeling from a string of legal tussles over purchases of state land under Egypt’s former president, and a widening graft probe had already scrapped sales to the two biggest listed Egyptian developers, Talaat Moustafa Group and Palm Hills Development.
The new contract replaces a deal signed in 1998 by Alwaleed’s Kingdom Agricultural Development Holding for land for irrigation near Egypt’s border with Sudan, and will boost confidence that other disputes can be resolved amicably.
"This helps in getting things back to a normalized footing so people can start signing contracts again and making decisions about investing in Egypt," said Michael Millar, head of research at Naeem Brokerage.
Egypt had already said it would set up a committee to settle problems surrounding investment contracts.
"The signing of a new contract is a positive movement," said Osama Mourad of Arab Finance Brokerage. "It opens the door for negotiations and reconciliations with the private sector."
Both real estate and banking stocks are likely to feel the positive effect of the signing of the new contract, Mourad said.
Dividend tax scrapped
The market will also likely continue to rise after investors regained confidence when the government scrapped a plan to tax share dividends.
Egypt’s new budget introduced a 10 percent tax on dividends as well as a 5 percentage point rise in income taxes on corporations and individually owned companies.
Finance Minister Samir Radwan told Reuters he would not revive the dividend tax this year and is looking for ways to reduce planned expenditure as a result.
The decision helped push Egypt’s benchmark index up 1.3 percent.
"The market is up because the cancellation of the capital gains tax was seen as a mistake," says Mohamed Radwan, the head of equities in Pharos Securities. "The government’s revision of the decision was in favor of Egypt’s investment climate".
Although volumes are likely to remain thin, the index may be boosted when Sweden’s Electrolux offers details of the results of its due diligence checks, delayed by 15 days, for buying appliance maker Olympic Group.
Saudis focus on heavyweights
Saudi Arabia investors will withdraw positions from riskier equities and shift their focus to market heavyweights that are more "investment worthy", as the end of the second quarter approaches, analysts said.
"What we saw last month was heavy retail involvement in speculative names, which are now selling out and moving into the large-cap names," said a Riyadh-based fund manager.
Large-cap stocks like Saudi Basic Industries Corp (SABIC), the world’s biggest petrochemical firm by market value, are expected to post improved quarterly earnings on the back of high oil prices and recovering economy.
"The Saudi market is still going to be more resilient compared to the regional or global markets due to high expectations on second-quarter results," he added.
Volumes are also seen declining as trading activity drops during the traditional summer with many travelling abroad.
The market may see pressure from an escalating political situation in neighboring Yemen after two Saudi border guards were killed and one was wounded by a man trying to cross into Yemen early on Tuesday.
Separately, at least 45 people were killed in Zinjibar, an Al Qaeda-held town in Yemen, and protesters took to the streets of Sanaa to demand that President Ali Abdullah Saleh stay in exile after leaving for Saudi Arabia for surgery.
"The unrest there is spilling over to our borders and if the situation escalates, it would not be good for our markets," the fund manager said.
