Rasmala - MENA market overview July

Published August 7th, 2008 - 12:14 GMT
















Jordan Index (JOD)




<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Oman Index (OMR)




Morocco Index (MAD)




UAE Index (AED)




Saudi Arabia Index (SAR)




Qatar Index (QAR)




Tunisia Index (TND)




Egypt Index (EGP)




Kuwait Index (KWD)




Lebanon Index (USD)




Bahrain Index (BHD)









*.All returns are latest available end of day July 31 2008.



Despite a strong profit reporting season from leading corporations in the MENA region, July was a difficult month for most markets. The Abu Dhabi Index (ADX) was the only market to post positive returns while the Saudi market plunged to new lows for the year. The previously resilient Omani and Kuwaiti markets could not resist the weak sentiment and lost 5% and 3% respectively. Outside the GCC, the Egyptian market continued to suffer from a host of domestic and international factors and lost a further 6% reaching over 12% lower for the year.


These losses meant that global equity markets outperformed those in the MENA region during the month of July. Global equity markets, particularly the United States, recovered some of their poise as oil prices corrected lower giving much needed relief to the global economy.


Within the MENA region, seasonally low trading volumes, lingering concerns over the Iran nuclear issue, a busy IPO schedule in Saudi Arabia and the UAE and profit taking in Kuwait and Oman overshadowed the excellent valuations and positive corporate news, leaving the broad MENA market index close to 5% lower for the month.

Saudi Arabia
The Saudi market continued its downtrend and slid further from its 9000 level, failing to find any major support throughout the month of July. Investors were seen realigning their portfolios ahead of second quarter earnings while the Saudi Arabia Mining Co. (MAADEN) IPO, the country’s second largest, drained liquidity from the secondary market and was 200% covered. After crossing the psychological barrier of 9,500 points early in the month, the market endured a heavy sell-off, mainly hit by the cement sector, which suffered from a government decision to ban exports of cement in an attempt to deal with shortages in the domestic market. Large cap banking shares also performed poorly dragging the index further down and adding to the weak sentiment. Despite healthy second quarter results, retail investors were cautious and continued to hoard their cash to invest in IPO’s thereby depriving the secondary market of liquidity. In addition, the market seemed to react negatively to new CMA regulations designed to increase transparency in the market by requiring disclosure of large shareholders in listed companies.

The Tadawul index loss of over 6.5% for the month has taken the valuations of this market to under 16 times estimated 2008 earnings, which is extremely attractive vis a vis historical levels and global and regional peers. A regulatory or geo-political catalyst is needed for a higher re-rating.

The Dubai Financial Market started the month on a strong note, surpassing the level of 5,500 points as investors accumulated positions ahead of positive second quarter results’ expectations. However the market failed to sustain its uptrend and was undermined by selling pressure on its heavyweights including Emaar, Emirates NBD, Tamweel, and DFM amidst signs that foreigners were exiting the market in addition to a strong resistance above the 5,500 level due to increased foreign institutional selling. Despite most of the second quarter earnings beating analysts’ expectations, investor sentiment turned bearish by the middle of the month until a strong rally in Arabtec, Dubai Islamic Bank, Deyaar Development and Union Properties towards the end of the month erased some of the earlier losses. The Drake and Scull IPO, which was oversubscribed 101 times, was a clear sign that liquidity is abundant but continues to be directed at IPOs and physical real estate as opposed to secondary public market shares.

The Abu Dhabi market continues to outperform its Dubai peer and was the only market regionally to end the month in positive territory, mainly supported by a good performance by First Gulf Bank and Etisalat based on their strong second quarter earnings. Fresh margin positions were being opened at the beginning of the month providing a push to the index which touched the psychologically important 5000 level. Throughout the rest of the month, the ADX saw its shares trading sideways as most of the second quarter earnings were factored in already, while most of the large cap stocks were suffering from limited buying interest at current levels. The market closed the month slightly higher.

UAE stocks maintained their attractive valuations at just over 13 times forecast earnings, making them some of the most attractive markets in the region and it seems to be only a matter of time before a sharp move higher from these levels.

The Kuwaiti equity market reversed its uptrend of the last seven months as investors booked profits on many of the heavyweights following their recent strong rally. A wave of selling across the board pulled the index to close 3.10% lower with blue chips suffering the most. The key investors in blue chips, funds and high net worth individuals, were mostly inactive during July while small cap stocks were attracting more trading from retail investors. In addition, investors were liquidating some positions in order to buy into the Zain rights issue which is expected in August. Government measures to cope with inflation such as limiting banks’ loan books are creating concern among investors with regards to the future performance of the Kuwaiti banking sector.

With a forward PE ratio of around 12 times forecast earnings, Kuwait continues to offer the most attractive valuations in the MENA region, and we continue to favour its market due to its valuations and immunity from regional and international dynamics.

Following a strong start to the month on the back of positive second quarter earnings expectations, the Qatari bourse lost its momentum and failed to maintain its level above the 12,000 mark. In line with its GCC peers, the Doha market registered a weak performance during the month and was heavily affected by losses in large cap stocks, namely Commercial Bank of Qatar, Qatar Islamic Bank, and Qatar Telecom following news that the Telecom giant could not acquire more than 49% of Indonesia’s PT Indosat. Rayan Bank also suffered high sell off due to its second quarter results falling well below expectations. Investors were seen booking profits offsetting the gains of the rally early in the month amidst dwindling trading volumes.  Despite healthy second quarter earnings, the index continued to face strong resistance around the 12,000 mark and ended the month around 2% lower.

The Qatari market continues to be the most expensive regional market with valuations of around 19 times forecast earnings and price-book ratios of around 4.4 times. A limited supply of stocks and foreign ownership limits will keep interest high in this market but bouts of profit taking and high volatility are to be expected in the short term.

The Omani market could not escape the negative trend in the region and suffered heavily towards the end of the month as a wave of selling pressure, mainly focused on banking shares, set in. Spurred by new regulatory changes regarding lending rates and reserve requirements, heavyweights Bank Muscat and National Bank of Oman were weak, dragging the index down despite positive earnings announcements. Share prices of large cap Raysut Cement, Galfar Engineering and Contraction also closed lower further depressing sentiment. News of planned consolidation in the Pension Fund sector seemed to negatively affect the market as this sector is its primary source of liquidity.
The subdued mood was reflected in lower trading volumes during the month leading the index lower with losses of just over 5% to end below the 11,000 level. This loss has slightly improved the valuation of the market to around 15 times forward earnings.



Hit by a renewed round of selling and uncertainty in global markets, the Egyptian market continued to be one of the worst performing markets in the region losing close to 6% over the month. Domestic investors were seen to be liquidating their positions before the seasonal holiday and no foreign support was forthcoming. The index moved lower throughout the month weighed down by losses in blue chips like Orascom Telecom, which was hit after Morgan Stanley downgraded their price target for the company. Valuations are at quite attractive levels at this point but the market needs the global investing environment to improve before domestic and regional investors are encouraged to re-enter the market.

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