DUBAI/CAIRO: Saudi Arabia’s stock market is likely to be largely unaffected by geopolitical tensions with Iran next week and to focus instead on petrochemical companies which are due to announce quarterly earnings, analysts said.
Washington’s accusation that Iran backed a plot to kill the Saudi ambassador to the United States has the potential to hurt markets. But Saudi stocks did not react to it on Wednesday and may not do so unless outright conflict looks likely.
"At this time it’s not a concern, it’s only an accusation. Right now markets are being driven by fundamental factors like earnings and (economic) uncertainty in Europe and the US," said Youssef Kassantini, a Saudi-based financial analyst.
"The tension has always been there between Saudi and Iran, which did affect the market and created a level of fear, but it is continuous and the market is used to this factor. I don’t think it will develop into anything that will move the market."
Mohammed Alomran, a member of the Saudi Economic Association, a think tank, said: "It had zero effect on the market which was more interested in the international scene, mainly the Obama (jobs) bill that didn’t get passed and profit announcements on a local level."
Along with banks, petrochemical stocks are one of the two most heavily weighted sectors in the main Saudi stock index, representing about 30 percent of total market capitalization. The petrochemical index rose 2.6 percent in the past week, while the main index climbed 1.7 percent.
"Saudi petrochemical numbers will be good although slightly off Q2 numbers. But compared to Q3 2010, there will be growth," said Shakeel Sarwar, head of asset management at Securities & Investment Co in Bahrain.
Saudi Basic Industries Corp (SABIC), the world’s largest chemicals producer, is expected to post a net profit rise of 48.9 percent when it reports in coming days or weeks, according to analysts polled by Reuters. The stock is down 12.9 percent for the year and has an extremely low trailing price-earnings ratio of 10.2.
"Markets are waiting for the leader stocks to announce results, especially SABIC," said Tarek Al-Madi, an independent Riyadh-based financial analyst.
"The market will take the cue from these results and then the speculative trading will start on the rest of the stocks."
Saudi Arabia’s Yanbu National Petrochemicals Co (Yansab) on Tuesday said its third-quarter net profit more than doubled, helped by higher prices and increased output, but the results still missed analyst expectations. The stock fell 1.3 percent lower as investors booked profits.
Light crude fell from $99.6 a barrel in July to 79.2 at the end of September, its lowest level since September 2010.
"Petchems’ earnings should be reasonable. Product prices are still good in year-on-year terms and I’m not aware of there being much disruption to volumes," said Paul Gamble, head of research at Riyadh-based Jadwa Investment. "But I don’t think earnings will be as strong as Q2 2011 given the recent falls in product prices."
Qatar banks
Qatari bank earnings may also stimulate activity in coming weeks. Regional heavyweight Qatar National Bank has already reported, posting a 27 percent jump in third-quarter net profit to 1.9 billion riyals, beating analysts’ estimate of 1.8 billion riyals.
The stock has risen for five straight sessions and is up 7.4 percent on the year, outperforming the main market index which is down 3 percent.
Qatar Islamic Bank is expected to post 14 percent growth in net profit, according to an average of five analysts’ estimates.
"Volumes are low (in Qatar) but there is still a belief of strong results coming from banks," said Samer Al-Jaouni, General Manager of Dubai-based Middle East Financial Brokerage. "Institutionals are accumulating banks because of historically attractive cash dividends at year-end."
However, any sustained rally in Gulf equities continues to look unlikely while the euro zone debt crisis remains fundamentally unresolved, analysts said.
"Strong corporate performance is going to be a catalyst for the market if we see some serious progress toward resolving the debt issues in the euro zone. But at the moment, the global uncertainty is hanging over the market," Jadwa’s Gamble said.
Egypt
Egypt’s market, down 43.3 percent this year, will remain vulnerable to political instability and any further violent unrest after clashes on Sunday night between the army and Christian protesters in Cairo left at least 25 people dead.
But a sharp rebound of the index off an intra-day low of 3,820 points in the past three days, to a close of 4,152 on Thursday, suggests the market may have found a fairly solid bottom because of cheap valuations.
The 3,380-point level, a multi-year low hit in early 2009, is seen by many traders as strong chart support.
"What we have now is not heavy selling but a lack of buyers. Stocks are attractive in the long term but in the short term we’re going to be in an extremely tight range," said a foreign sales trader at CIBC in Cairo.
He forecast the index would remain in a range of 3,800 to 4,200 points for some time, possibly falling as far as 3,400 before foreign investors returned in significant numbers.
