JEDDAH, 5 September 2006 — Arab equity markets ended August with positive returns, following the cease-fire announced in the Lebanon crisis. Hopes for a sustainable recovery in Arab equity markets were temporarily put on hold by the crisis and some of these markets reached their lowest levels for the year by the middle of August. However, these markets very well received the ceasefire announced on Aug. 14 and they ended the month with positive returns, according to a Middle East market overview.
Saudi Arabia, the largest market, was up 2.4 percent during August. This rally comes on the back of the large losses of July as the improving situation in Lebanon and the pickup in volumes brought investors back to the market, Bassem El-Zein, vice president communications and marketing, Rasmala, said in its Middle East market overview yesterday.
Liquidity remains very abundant as evidenced by the close to 14 percent growth in bank deposits at the end of the second quarter of this year compared to the same period last year, and persistently high oil prices and the pause in interest rate increases in the US will ensure that this will remain the case for the foreseeable future, the survey report said.
The IPO schedule continues to be heavy and most IPOs continue to be over-subscribed as market participants see quicker profit making opportunities in the primary market.
Emaar Economic City’s IPO was oversubscribed by 2.8 times, as 10 million Saudis subscribed for SR7.18 billion worth of shares.
In addition, Saudi International Petrochemical Company (Sipchem) will float 30 percent of its 150 million shares as part of the IPO on Sept. 9 and a SR10 billion IPO for Saudi Development Bank is expected in November, the report said.
The appetite for IPOs will continue and most of the new issues are expected to be oversubscribed, which will continue to exert pressure on the secondary market. The Saudi Capital Market Authority has been taking quiet steps to introduce further transparency to the market, the report added.
The Egyptian market continues to make good progress and build on its spectacular performance in July. Market leader EFG-Hermes reported a whopping 252 percent increase in profits for the first half of 2006 compared to the same period in 2005, while Orascom Construction reported a 53 percent jump in profits during the first half of the year.
The fundamentals for the Egyptian economy remain positive as revenues from oil exports, workers remittances and increased volumes of traffic through the Suez Canal continue to support the country’s balance of payments and foreign current reserves.
Positive news coming from some UAE companies and the calming down of the situation in Lebanon led to a very strong improvement in prices and trading volumes on the two UAE exchanges.
Trading volumes and gains were very much concentrated in market leader Emaar, which represented some 70 percent of total trading volumes on some days.
This greater investor interest and an attractive price is likely to drive its price higher in the coming months as investor sentiment improves.
Qatari stocks were down 2.2 percent during August as profit taking in the last few days of the month erased earlier gains. First half corporate profit releases indicate over 32 percent growth year on year and importantly, this growth seems to be coming from core operations which is a good sign.
The Kuwaiti market recovered well after having reached a year to date low and is up 2.6 percent as banking and investment sector stocks gave support to the market.
The Omani market gained 7.7 percent with trading volumes increasing by over 40 percent, as local and foreign investors seemed to suddenly realize that this market is one of the cheapest in the region.
Banking and insurance companies continue to attract most of the activity in the market. The Jordanian market showed a marked improvement in trading volumes.
“In conclusion, we expect that most of the regional equity market correction is behind us as fundamentals remain very supportive. The recovery will not be uniform however, and a focus on earnings quality and valuations across markets and single stocks is strongly recommended,” El-Zein said.
