MENA equity markets retreated by 2.0% in June bringing down their gains to 12.6% in H1 2009, with the Lebanese market posting the best results with a gain of 21.4% after the Hariri coalition defeated the Hizbullah bloc in the June elections. As for GCC markets, Oman was the only market to gain this month.
Saudi banks led the market down as they fell by 8.0% in June on concerns of exposure to the troubled Saudi groups. The Saudi Central bank froze bank accounts related to two private Saudi companies; Ahmed Al Gosaibi and Saad Group, after defaulting on payments and announcing the restructuring of loans worth approximately USD 6.0 billion.
Among the few gainers this month was Almarai which bucked the general market trend by gaining 8.2% in June on the back of an aggressive acquisition spree, and on another positive note the Saudi stock market regulator approved six IPOs over June-October period.
The solid domestic macroeconomic environment supports the defensive profile of several Saudi equities relative to GCC peers and particularly the UAE and Kuwait, however the lack of disclosure by Saudi banks on their exposure to the two troubled Saudi groups is a concern.
Investors' concern about Emaar's merger plans and the exposure of UAE banks to the troubled Saudi groups negatively impacted the stock market performance for the month, with the UAE equity market falling by 1.4% in June bringing its H1 2009 gains to 16.7%.
Investors became concerned about the exposure of UAE banks to the troubled Saudi groups after the Central Bank governor stated that UAE banks have significant exposure to the two groups; an estimated USD 3.0 billion. Abu Dhabi Commercial Bank and Mashreq Bank have the largest exposure of approximately USD 400 million and USD 200 million respectively.
These investors concerns will continue to affect sentiment negatively for the coming month, and there does not appear to be potential for positive Q2 09 earnings, therefore we remain skeptical about the UAE market in the short term.
The Kuwaiti market fell by 0.9% bringing its total gains this year to 3.8%. Trading values were up by 21% with top gainers including Boubyan Bank and Zain. Kuwait remains expensive relative to its GCC peers, and financial losses are expected to impact corporate earnings negatively in Q2 09.
Qatar was the worst performing market in June falling by 7.0% over the month led by Industries Qatar and Commercial Bank Qatar which fell by 6.8% and 16.8% respectively. The decline in CBQ shares came as a surprise given the government's plan to acquire real estate investment portfolios from Qatari banks. Fitch Ratings maintained its stable outlook for the Qatari banking sector but warned of difficult challenges including slower loan growth, funding constraints and increasing impairment charges.
Given the relatively attractive valuations, solid macroeconomic fundamentals and strong government support, the outlook still remains positive for Qatar, which is expected to report a real GDP growth of at least 7.0% in 2009, and is set to increase its annual gas production capacity from 39 million tonnes to 60 million tonnes by the end of this year. Qatar's recent decision to reduce corporate taxes from 35% to 10% and absolving Qataris and GCC nationals from paying taxes is also expected to help attract investments in the country.
The Omani market was the only GCC to record positive performance in June gaining 2.0% despite Bank Muscat reporting exposure to the troubled Saudi groups. National Bank of Oman and Bank Dhofar announced exposure to Saudi Arabia's troubled Algosaibi group of USD 17 million and USD 10 million respectively. After falling by 6% on disclosing its exposure to the Saudi groups, Bank Muscat recouped its stock price fall on divesting its remaining 0.5% holding in HDFC Bank. The bank raised a pre tax profit of around OMR 21 million, which will be included in Q2 09 results.
Valuations in the Omani market remain reasonable versus their regional peers and the market is expected to continue its gradual recovery over the medium term.
The Egyptian market lost 3.8% in June and is now the second best performing Arab market after Tunisia (7.8% gain) in the first half of 2009. Mobinil fell by 11.9% over the month as the two main shareholders in Mobinil, France Telecom and Orascom Telecom, continued to trade accusations in the media in their row over ownership of the operator. France Telecom said it will not raise its offer to buy out the minority shareholders at Mobinil after the Egyptian market authorities rejected it. The company submitted a complaint to the CMA about the rejection of its offer.
The Egyptian stock market remains cheap relative to emerging market peers and provides a good entry point for foreigners. A possible catalyst for the market in the short term is a return of foreign buying which has been limited since local investors started to take profits. A market rebound will also be supported by falling deposit rates and more possible rate cuts by the Central bank in 2009.
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