A strong performance by Egypt's stock market in the last few days, despite a string of negative political and economic news, suggests the market's year-long downtrend has ended and investors will continue flocking back.
Stone-throwing protesters clashed with riot police this week in violence triggered by last week's deaths of 71 people at a soccer match, while the government risks losing US military aid in a dispute over foreign-funded democracy groups. The central bank revealed this week that foreign reserves continued to fall rapidly in January, threatening a currency crisis. But the Egyptian stock index climbed 2.7 percent on Wednesday, erasing losses suffered in the days after the soccer disaster, as investors focused instead on signs that the ruling military might be willing to accelerate the transition to civilian rule. This issue, rather than Egypt's economic problems or the level of street violence, is for now the key issue for many investors.
Officials announced on Monday that the new date for presidential election nominations was March 10; previously it had been set for around mid-April. "The sentiment is now that the political environment in Egypt is steadily heading towards a civilian power transfer," said Mohamed Kotb of Naeem Brokerage. "This market rally will be sustainable, especially because stocks are still relatively cheap for international investors."
The index is still 35 percent below a peak hit in January last year, just before the uprising that toppled Hosni Mubarak. Rising trading volumes, which have increased by about 50 percent since last month, suggest stocks could be poised to rise across the board, especially blue chips, Kotb said. "The market exit that occurred in 2011, I think, is now reversed and investors are coming back."
Orascom Telecom Media and Technology (OTMT) may be a focus for the market next week. It surged 7 percent on Wednesday after its founder Naguib Sawiris discussed expansion plans in Europe, the Middle East and Africa in a Reuters interview.
OTMT's subsidiary mobile phone company Mobinil also soared this week on unconfirmed market talk of a reorganization of shareholdings between the two companies.
Buoyed by rises in global markets, Dubai is up 10 percent so far this year, helped by an unexpected advance in the real estate and construction sector, after a 17 percent drop in the main index last year. Trading volumes have risen about 50 percent from last year's levels. But initial announcements of fourth-quarter earnings have been mixed, and the market's future direction is likely to be determined by earnings from blue chips which are expected to report in the coming week, including Emaar Properties, Dubai's leading builder Arabtec, and bank Emirates NBD. "The Dubai market needs to take a breather...a lot of speculation and rumors have driven the stocks up in the property sector, but the fundamentals do not match," said Nadi Bargouti, head of asset management at Shuaa Asset Management.
House prices and rents in Dubai have fallen as much as 60 percent since their peak in 2008, forcing many companies to abandon projects and some to restructure their debts. Institutional and retail investors are now taking steps back into the sector, but in the absence of clear signs that property prices have bottomed, the rally is tentative. Emaar's 2011 earnings may set the tone for this year, analysts said. "If we don't see good fourth-quarter earnings for Emaar, it will give us an indication of what is in store for the sector in 2012, especially when it comes to operating income," said Samer Al-Jaouni, general manager of Middle East Financial Brokerage.
Abu Dhabi's approval last month of a raft of infrastructure and property projects, including delayed plans for branches of the Louvre and Guggenheim museums, was seen by investors as a sign of support for the sector from the government.
Arabtec, which was one of the contractors behind the construction of the world's tallest tower Burj Khalifa in Dubai, is expected to bag at least some of the Abu Dhabi contracts. Its shares have surged nearly 70 percent this year, though many traders believe the spike may not be justified.
"We are seeing retail buying coming back, which is a good indication for the market," said Adel Nasr at United Securities in Muscat. "If the Dubai market continues to rally, then Oman will benefit because sentiment here is closely correlated to the Dubai market. We have some concerns regarding Greece at the moment but if this is resolved, we should see a strong rally in the Gulf markets."
Emirates NBD, Dubai's largest bank by assets, will announce fourth-quarter results next Wednesday. "The banking sector has so far been mixed in its fourth-quarter earnings. Some banks gave a generous dividend but some others have been struggling with provisions," said Al-Jaouni.
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