DUBAI/CAIRO: Gulf fund managers, who had adopted defensive positions ahead of the Greek parliament’s first austerity vote, expect sentiment to lift in its aftermath, propping up regional markets next week.
Greece’s parliament approved the first of two deeply unpopular austerity bills on Wednesday, in a vote vital towards securing international funds and preventing the euro zone’s first sovereign default.
"Now you will see the first wave of a potential rally on back of Greek vote. We’ll see a strong euro, it’s going to bode well for the commodity and equity markets," said Haissam Arabi, chief executive and fund manager at Gulfmena Investments. "All in all, things are looking good."
Arabi said the second vote on a bill enabling individual budget measures and the privatization of specific state assets may bring fresh volatility to markets.
"There might (be) … some profit taking, but in the short term, (the first vote) will still give a positive tone for global markets and regional markets, given the close correlation."
Most Gulf markets will be closed on Thursday for a religious holiday, with only Bahrain and Qatar open. Egypt’s bourse will also be open.
Meanwhile, Saudi Arabia and Qatar will see second quarter corporate earnings reports begin to trickle in. Strong results are expected from Saudi petrochemicals, with a weaker outlook for United Arab Emirates and Omani companies.
"Nobody is expecting runaway earnings growth (in the UAE), especially from the banking sector," said Ibrahim Masood, senior investment officer at Mashreq Bank. "It is very stock specific in that sector and if you strike out the earnings bit, there’s not much else."
Most Gulf markets will close between 1 to 3 percent lower in June with Dubai’s index down almost 2.8 percent, and low volumes signaling subdued buying interest.
"Overall, the feeling is, we can afford to wait. For the next six to eight weeks, I don’t think there will be a lot of action," Masood added.
Egypt seen declining
The Egyptian stock market may continue its downward trend over the coming week as investors digest the ramifications of revisions to next year’s budget and the government’s subsequent decision to forego IMF loans, analysts say.
The benchmark index EGX30 has slid by about 4 percent since last Sunday, partly on concern the revisions could dampen growth at a time when the economy is in dire need of a stimulus.
The revisions rely on a mix of tax increases and spending cuts to reduce the projected budget deficit in the financial year that begins on July 1 to 8.6 percent of GDP from the previous forecast of 11 percent.
"That’s gotten foreign investors rattled, I think," says a Cairo-based analyst. "It’s not a great step when the economy is weak."
Forex traders expect the Egyptian pound to remain to remain relatively stable against the dollar ahead of parliamentary elections scheduled for September, but believe the government may allow it to weaken once the new parliament is in place.
The pound weakened late last week and early this week to its lowest since mid-April, mainly due to local corporate demand for dollars at the end of Egypt’s financial year on June 30, one currency analyst said.
