DUBAI/CAIRO: Hopes are still alive for a year-end rally of Gulf stock markets, although it has been a disappointing year for most investors and low trading turnover shows many are still reluctant to put fresh money into shares.
In the past, markets in the region have sometimes rallied into the end of a year as investors look to position themselves for the new year and put idle cash to work — in Qatar, for example, the main index has risen in December for four of the past five years. Fund managers say there are reasons to hope for gains this month as long as the euro zone debt crisis does not worsen further.
"There are enough catalysts in local markets that if we see some stability in global markets, I don’t see why we shouldn’t have a year-end rally," said Haissam Arabi, chief executive and fund manager at Gulfmena Investments.
By contrast, Egyptian shares are likely to remain vulnerable to fresh selling because of concern over the country’s economic situation, as the Egyptian pound edges down to fresh six-year lows against the dollar, foreign reserves shrink and the budget deficit widens, analysts said. The share index is down 44 percent this year.
Senior army financial official Mahmoud Nasr said late last week that foreign reserves, which stood at $20.2 billion at the end of November, would fall to $15 billion by the end of January. This raises the risk of further, faster currency depreciation in coming months.
Shares rebounded 8 percent last week after the first round of voting in Egypt’s parliamentary election took place with almost no violence; a further two rounds with run-offs are scheduled to extend into the first half of January. But if the economic news remains grim, it may outweigh any positive political events, analysts said.
Because of the currency’s weakness, "companies that rely on imports for production priced in US dollars are likely to suffer the most, while those that use local inputs and whose markets are outside the country are likely to benefit," said Mike Millar of Naeem Brokerage.
He mentioned car assembler GB Auto, which imports car and parts for assembly and sale in Egypt, as a firm that could suffer and Arafa, Egypt’s biggest garment exporter, as one that might benefit from a soft Egyptian pound.
Gulf
Dubai’s benchmark index hit seven-year lows this year and is down 15 percent so far in 2011. But analysts say positive news in recent weeks may help to put a floor under the market.
The United Arab Emirates government announced last month a doubling of salaries for state employees in some sectors and a $2.7 billion fund to help pay poorer citizens’ debts. The economic impact is not expected to be huge — one analyst estimated it might at most add half a percentage point to gross domestic product growth — but it was followed by news that the cabinet had approved a draft companies law that would allow higher foreign ownership ratios in firms and could improve corporate governance.
In early November, the UAE’s market regulator published new draft rules on short-selling and borrowing of securities, which potentially could boost trade and attract more foreign investment in the stock market.
Meanwhile, index compiler MSCI is due to announce on Dec. 14 whether it will include the UAE and Qatar in its emerging market indexes. A positive decision would likely lure fresh institutional money to the markets, although perhaps not much in the current gloomy global climate, analysts said.
One downside for Dubai is concern that some state-linked companies may restructure some outstanding bonds which mature in 2012. Moody’s Investors Service said this week that while the Dubai government is willing to support its affiliates financially, it may not have the capacity to do so.
At the end of the day, however, many investors expect oil-rich Abu Dhabi to again come to Dubai’s aid if necessary, as it did in 2009 with a $10 billion bailout.
And the technical outlook for the Dubai stock index appears to be improving. Since October the index, which ended Wednesday at 1,386 points, has twice bounced from near chart support at this year’s low of 1,338 points, which was first hit in March. When the index did so in late November, 14-week momentum showed a positive divergence, a sign that the downtrend may be ending.
"There’s a base formation possibly taking shape, which we find very encouraging; we’re watching out for a confirmation of this base over the next few weeks," said Sleiman Aboulhosn, assistant fund manager at Al Masah Capital.
For many investors, confirmation would come in the form of any close above the index’s October peak of 1,426 points, which would trigger a double bottom formed by the October and November lows.
Qatar
Sentiment is more optimistic in Qatar, where the economy is growing strongly on the back of a natural gas boom. The index is up 1 percent year-to-date, outperforming other Gulf markets. Traders said some of the buying was due to hopes for an MSCI upgrade, though it remains unclear whether Qatar has done enough to satisfy MSCI in terms of lifting foreign ownership limits.
Technically the index, which closed Wednesday at 8,779 points, is strong; it has traded in an uptrend channel since early October and has triggered a reverse head & shoulders pattern formed by the June, August and October lows. Any break above the April peak of 8,843 points would be seen as bullish by many investors.
"Moving towards year-end, we believe Doha’s index is well positioned to hold or even extend its gains, perhaps moving further towards the 9,000 level. This, of course, will be heavily influenced by developments in the EU and global markets," Aboulhosn said.
