After the excitement of October, November was a quieter for MENA equity markets as consolidation and range bound trading was witnessed across the region. The markets digested the successful IPO of DP World which issued 3.81 billion new shares, to be the first mega listing on the DIFX and become the largest IPO in the region. The IPO was the first in the region to use the book building mechanism which got 15 times oversubscribed. The offering’s primary market success could not be matched in the secondary market as the prices fell below the issue price on the second day of its trade and to-date, has not recovered.
The preceding month has once again re-affirmed the diversification benefits of regional markets as the overall MENA market index registered gains of around 1.25 per cent while global equity markets witnessed heavy losses in light of the ever continuing financial problems in the US and Europe. Saudi equities extended their October rally by gaining close to 10 per cent during the month, thus being the best performing regional market. Omani equities gave a positive return for the eighth straight month, taking the market’s year-to-date return to over 51 per cent, thus strengthening its position as the best performing regional market in 2007. With third quarter results behind us, investors seem to be in a “wait and see” mode as they await fourth quarter results after the holiday period towards the end of December.
The big macro-economic news over the month was heightened speculation regarding an imminent revaluation or de-pegging of GCC currencies from the US Dollar. This led to severe distortions in the currency and money markets, particularly in the UAE. Politicians and Central Bank Governors succeeded in temporarily calming these markets after the Doha Summit, although it seems to be only a matter of time before the speculative pressures build again. This speculation has had a mixed effect on regional equity markets with confusion being the prevailing factor amongst the investor community.
Saudi Arabia
Saudi equities extended their October rally in November posting close to a 10 per cent return for the month and taking 2007 returns to close to 20 per cent. During the month, trading volume increased by 57 per cent as 4.07 billion shares changed hands in brisk trade. The market started the month positively and gradually gained momentum before some profit taking towards the end of the month. The announcement of the 2008 budget and several economic initiatives during the Riyadh Economic Forum was well received by the market and was an important factor in extending the strong performance throughout the first few days of December.
Saudi equities are currently valued fairly attractively at price earnings multiples of around 15 times and dividend yields of 6.6 per cent. Third quarter net profits of companies listed on the Saudi Stock Market reached SAR 23.26 billion, a 12 per cent rise compared to the corresponding period last year. Solid corporate earnings growth, along with ongoing structural and financial sector reforms are expected to increase capital flows to the stock market, particularly from institutional investors, thus hopefully minimising the effect of short-term speculative trading which has had a negative effect on this important market.
In corporate results, National Commercial Bank announced its nine months net profit of SAR 4.8 billion.
In the corporate news, Saudi Telecom announced that it won a bid for a 26 per cent stake in Kuwait’s third mobile telecom operator as part of its ongoing efforts to revive growth earnings.
UAE - Dubai Financial Market (DFM)
After the stellar performance in October with close to 25 per cent gains, the DFM extended its gains during the month with a 1.43 per cent return over November. The trading pattern was somewhat unclear as investors digested the strong recent gains and support from foreign buying began to dry up. The market’s strong start to the month gave way to some profit taking as investors awaited the DP World IPO. Reports of profit taking by foreign investors also dampened the sentiment leading to further bouts of selling by domestic investors. Trading activity remained buoyant and increased by 25 per cent over the last month as 23.3 billion shares changed hands during the month’s trade. The huge speculation on a revaluation of the AED versus the US Dollar led to further rate cuts by the UAE Central Bank in its attempts to discourage this speculation. This had a mixed effect on the market, nethertheless, ever decreasing interest rates, and the high rates of inflation, will ensure that liquidity conditions remain supportive of further market gains in the medium-term.
In corporate news, Air Arabia announced its plans to set up a second hub in the Moroccan capital of Rabat to serve Europe, Middle East and North Africa. Arabtec Holding Co. announced a`60 per cent acquisition in Target Engineering Construction Co. Tamweel and Bonyan International announced a signed agreement to jointly purchase and develop a AED 1.93 billion plot of land in the Al Jadaf area of Dubai.
UAE - Abu Dhabi Securities Market (ADSM)
Unlike its local peer, the ADSM reversed its two month winning streak ending the month with close to a 2.5 per cent loss. The market traded well during the first week of November before facing selling pressure from retail as well as institutional investors with overall trading volumes remaining unchanged from the previous month. Over all, the broader UAE General Index fell by almost 7 per cent due to poor performances of front line blue chip companies during the month.
In corporate news, Union National Bank announced its plans to set up a new real estate company with a paid-up capital of AED 5 billion while also announcing its approval from the China Banking Regulatory Commission to establish a representative office in Shanghai. Etisalat announced it had made a partial payment of US$ 133.217 million to Pakistan's government for its purchase of a 26 per cent equity stake in Pakistan Telecommunication Co. Ltd. Sorouh Real Estate Co. announced that it had been awarded a contract of AED 465 million to Al Geemi and Partners to construct the roads and utilities infrastructure at Shams Abu Dhabi. TAQA was granted an approval by the Canadian government to acquire Prime West Energy Trust (PWI) offering C$26.76 for each share.
In corporate results, Dana Gas announced that its revenues in the third quarter rose 15 per cent to AED 276 million compared to the same period last year.
Kuwait
The Kuwaiti market extended the correction that began in October to end the month with a loss of close to 6 per cent. The market seems to be consolidating after eight straight months of gains from February till September of this year. The market traded in a narrow range in the first few trading days of the month before succumbing to selling pressure as marginal or negative growth in third quarter reported earnings exposed some of the valuations as being excessive. Trading activity was muted during the month and overall trading volumes were 30 per cent lower than the previous month. Two new companies were listed - Munshaat Real Estate Projects Company (Real Estate sector) and Yiaco Medical Company (Services sector), thereby taking the total number listed companies in Kuwait to 194.
The government is planning to relaunch its privatisation effort with a controversial plan to sell shares in the state airline - Kuwait Airways. Private investment in the telecoms sector has meanwhile been given a boost with the award of a third mobile-phone license to Saudi Telecom. This follows the sale of a majority stake in Wataniya to Qatar Telecom in March, which constituted the largest foreign direct investment in Kuwait in the year to date. On the regulatory front, an independent telecoms authority is also due to be established within a year. Such privatisation initiatives by the government would bring credible names to the secondary market and increase the depth of the market which is hoped to attract new investors to the market.
In corporate results, Agility reported that its net profits in the third quarter fell 14 per cent to KWD 38.97 million compared to the same period last year. Kuwait Cement Co. recorded a 1.4 per cent decline in the third quarter net profits to KWD 9.55 million compared to the corresponding period last year. Arab Insurance Group (Arig) announced that its net profits in the third quarter fell 20 per cent to US$ 10.3 million compared to the same period last year. Mobile Telecommunications Co. (ZAIN) announced that its net profits in the first nine months of the year rose 12 per cent to US$ 820.5 million compared to the corresponding period last year.
Qatar
After two very good months in September and October, Qatari equities reversed their trend to make small losses for the month. The market started the month well but several bouts of heavy profit taking erased early gains.
Qatari economic growth is expected to accelerate as substantial new hydrocarbons capacity comes on stream and private consumption is supported by strong government spending and high population growth. Inflation is at its highest levels at 13.73 per cent for the third quarter reflecting the continued supply-demand imbalances of the property market. Given the decoupling of the US and Qatari economic cycles, pressure is growing on the Qatari authorities to abandon the Riyal's peg to the weakening US Dollar. The unfolding of these events going forward should lay the path for the future course of Qatari equities.
In corporate news, Qatar Steel Co., a fully owned unit of Industries Qatar, announced a 49.9 per cent acquisition in a Mauritanian iron ore project. The deal is estimated to be worth US$ 375 million. Qtel has raised a US$ 3 billion loan to refinance the debt undertaken for the purchase of Kuwait’s Wataniya in March as global credit problems force regional companies to rethink their financing options. Doha Bank announced that it had signed an agreement with UTI Mutual Fund, one of the oldest and leading mutual funds in India, for the distribution of their products in Qatar. Qatar National Bank (QNB) announced that it received final approval to open branches in Mauritania offering commercial and Islamic banking services.
In corporate results Qatar Telecommunications Co. announced that its net profits in the first nine months of the year rose 1.55 per cent to QAR 1.31 billion compared to the same period last year.
Egypt
Egyptian equities continued their strong run with a third consecutive month of positive returns. The 4.45 per cent return for the month took 2007 returns to above 40 per cent making it the second best regional market after Oman. The market witnessed some weakness earlier in the month as global equity markets were under pressure. After the initial set backs, the market reversed its course and gained momentum to close higher. Trading volumes were marginally higher over the month with 648 million shares changing hands during the month’s trade.
