MENA equity markets grow stronger in April as global investor sentiment rebounds

Published May 12th, 2009 - 08:30 GMT

Following on from a decent March, April was a very strong month across most MENA equity markets and the broad regional index gained just over 15% to take 2009 performance into positive territory. All regional equity markets recorded gains, with Egypt and Saudi Arabia gaining 24% and 20%, respectively, to lead the pack for the month and the year. The Kuwaiti market showed some signs of recovery after a difficult economic and political period, gaining 12% over the month, while gains in the UAE were amongst the lowest in the region. MENA equity market investors received a mixed set of first-quarter 2009 results, but after a truly disastrous fourth quarter of 2008, investors were prepared for the worst and results generally came in at or above expectations for the most part.

UAE equity markets were able to add to their recent gains, but performance and trading volumes were lackluster compared with their regional peers. Despite the attractive valuations and supportive statements and actions from official bodies, investor sentiment remains very cautious amidst news of possible ratings downgrades of Dubai government-related entities and an ongoing international media focus on the problems of the real estate sector, which overshadowed some generally positive earnings releases. Despite some of the most attractive valuations regionally and globally, UAE listed equities continue to be plagued by negative investor sentiment arising from the troubles of the real estate sector and lingering concerns over the solvency of Dubai government-related entities, despite the recently raised US$10 billion from a bond issued by the Dubai Government and subscribed to by the UAE central bank.

Saudi Arabia, the largest MENA equity market ended the month with a gain of close to 20%, taking its 2009 gains to 17% and making it the best performing regional market. In terms of valuations, the strong recent gains have led to the market trading at a premium to its regional peers. Despite this premium, we remain positive on this market in light of the brighter global economic environment and a solid domestic macroeconomic environment, with the Central Bank (SAMA) further reducing interest rates to provide ample liquidity to the banking sector and the economy as a whole.

The Kuwaiti market continued its recovery and gained a further 12% over the month to reduce its 2009 losses to just under 3%. A slight improvement in the domestic political environment encouraged investors to re-enter the market and the improved global environment also played a part. Valuations of Kuwaiti listed equities have become expensive versus regional peers and continuing concerns about the investment sector and the unresolved political stalemate will continue to put pressure on the market in the short term at least.

Qatari equities followed up a strong March with another strong month as the market index gained 15% in April amidst solid domestic fundamentals and an improving global outlook.  Despite the recent strong gains, the Qatari market remains well valued versus regional and global peers at below eight times estimated earnings. We remain positive on this market, given the strong official support to the banking sector and the solid macroeconomic fundamentals of the Qatari economy, which will be further boosted by lower inflationary pressures.

Oman, the smallest GCC market performed better than in recent months, gaining around 12% in April to reduce its 2009 loss to around 6%. Valuations in the Omani market are reasonable versus their regional and global peers and we would expect the market to continue its gradual recovery over the medium term. Low levels of liquidity remain a concern and a revival of regional and foreign investor flows will be important in sparking a stronger move in this market.

Egypt, the largest regional market outside the GCC enjoyed a very strong month and benefited from both an improving regional and global investment environment. Going forward, we have a cautiously positive view on this market, which is expected to recover strongly if the global environment continues to improve and foreign investors return to emerging markets in general. There are some domestic socioeconomic issues to watch out for, however, and we would expect some consolidation and profit-taking after this sharp move.

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