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Arabian Markets Mixed in March Ending in Red After Black in Feb.
BY JAMAL AL MAJAIDA
Dubai skyline with Burj Dubai, the world's largest tower under construction

Dubai — Regional markets were very mixed during March with half the markets monitored ending in the red after a positive February. The telecom sector witnessed exciting developments and has kept everyone on the edge with regional companies making fresh investments in other markets.

Saudi Arabia reversed trends in the latter half of the month to lose half of its February gains. The Dubai market sank into depression due to the negative sentiment generated by developments at Emaar amongst the investor community.

Morocco added to its gains of the previous months to be the best performing market of the region with 20.2% return YTD while the other North African markets of Tunis and Egypt continued to outperform their larger G.C.C peers. Kuwait was the second best performing market over the month and is now the only GCC market with a positive YTD return, while the Qatari market continues to suffer from a shortage of liquidity despite valuations having reached attractive levels after its 2007 losses reached 15%.

The Saudi Tadawul Index closed at 7,666.1 or 8.5% lower than the previous month. The February rally extended to the 1st half of the month before the market suffered strong profit taking and lost all its YTD gains. Importantly, trading volumes showed a clear improvement and the SAR 20 billion average daily trading volume was one of the best since September 2006.

These large volumes were concentrated in the Services and Agricultural Sectors whose 85% share of the trading volumes is a clear sign that this market remains in the grip of speculators. There was however increasing interest in Emaar - The Economic City, which was the most actively traded stock and ended the month around 6% higher.

The telecom sector was one of the worst performing sectors over the month as Saudi Telecom came under pressure losing around 13% of its value with fears that its monopoly is being further eroded by new entrants.

During the month, the Medgulf's SAR 200 million IPO went well and was over subscribed around 4 times while Al-Rajhi Bank's announcement of a bonus issue was not well received by the market. SABIC has announced to build 2 new petrochemical plants for its envisaged growth plan to double its overall petrochemical output. Finally, Mobily has raised US$ 2.8 billion Islamic Loan to fund its expansion and continues a trend of Islamic financing solutions becoming the preferred financing instrument for regional corporates.

The Dubai market abruptly ended it's reasonable start to 2007 with the DFM Index closing almost 11% lower for the month.

The market was weak throughout the month and witnessed one way downward movement with the exception of a small rally towards the end of the month.

Significant developments at Emaar related to their dividend policy and transaction with Dubai Holdings seemed to take investors by surprise and was not well received by the market which continues to be dominated by speculators and short term traders thus leading to exaggerated reactions.

The public listing of the DFM, the 1st Islamic Stock Market, during the 1st week of the month and the announcement of the Emirates Bank International & National Bank of Dubai merger only had a brief and temporary positive impact on the market. Air Arabia, the 1st state owned airline to go public, completed its AED 2.65 billion IPO during the month and exposed the shallowness of market liquidity at this present time.

The Abu Dhabi market could not avoid the negative sentiment from Dubai, but in losing 6.70% during the month, performed relatively well. The excitement surrounding the announcement of 40% foreign ownership in Al Dar Properties shares and 20% foreign ownership in Sorouh Real Estate shares ended quickly and these stocks faced selling pressure before recovering during the last trading week of the month.

The Kuwaiti market was the best performing GCC market with a 4.6% gain for the month and is now the only GCC market with positive YTD returns.

The food sector was the best performing sector with more than 20% gains during the month. The Qatar Telecom – NMTC (Wataniya) transaction was the key event during the month and the close to $4 billion deal generated huge profits for some of the share holders of NMTC. The telecom sector continued to make the news in Kuwait as a consortium led by MTC won the 3rd mobile license in Saudi for US$ 6.08 billion which is significantly higher than the amount paid by Etisalat for the second license.

The Omani market ended the month with a loss of 3.5% which erased the gains made during the first 2 months of the year.

Market heavy weight Oman Tel announced a 19% increase in 2006 profits after a 26.3% increase in 4th quarter earnings and the board announced a 70% dividend. Newly listed Sohar Bank has attracted a lot of investor interest and was one of the most heavily traded stocks over the month as it closed 38.40% higher.

The Qatari market continued its poor performance with a loss of 4.2% in March thus taking it's 2007 losses to around 15% making it the worst performing market in the MENA region in 2007.

Economic indicators from Qatar continue to be very positive and Qatar's estimated 14.15 billion Qatari Riyal budget surplus for 2006 and massive investment in the economy has led to most of the front line companies achieving good results with every indication that corporate profits will continue to grow.

As such, and after these steep falls, certain valuations look very attractive but structural issues and unstable liquidity continue to weigh heavily on the market.
In key corporate news, Industries Qatar rallied after it proposed a 50% final cash dividend after reporting good results. Qatar Telecom (Qtel) witnessed selling pressure after some analysts questioned the price paid for the NMTC deal and its decision to acquire 25% in Asia Mobile Holding Pte. Ltd. for US$ 635 million raised further questions about the cost of financing these strategic acquisitions.

Nevertheless, Qtel is now a serious player in the telecom sector with a presence in nine countries in the MENA region in addition to a presence in Singapore and Indonesia.

The Bahraini market was the only GCC market apart from Kuwait to end the month in positive territory after reversing its early weakness towards the end of the month to close around 1% higher for the month.

Corporate earnings news supported the market with Al Baraka Banking Group announcing a 20% increase in net profits, Al Ahli United Bank announcing a 26% increase in earnings and Shamil Bank posting a 57% increase in net profits. Al Baraka Group also announced plans to launch a new US$ 100 million Islamic Bank while Batelco acquired a 20% stake in Yemen's leading telecom company Saba Fon to add another country to its footprint after having recently entered the Jordanian market.

The Egyptian market preserved the strong February gains and closed slightly higher during March. Public sector reforms, particularly in the Banking sector, continue at a brisk pace and The Central Bank of Egypt has invited bids for Al Watany Bank of Egypt. Egyptian Saudi Bank has said that it would sell its stake in public sector banks, with Al Baraka Banking Group expressing its interest in this potential opportunity to enter the Egyptian market. The telecom sector was also in the news as the Minister of Communications and Information Technology announced plans for the divesting of a further stake in Telecom Egypt. The Minister also said that another license for a fixed line can be awarded to end the monopoly of Telecom Egypt.

After strong gains in January and February, the Jordanian market underwent some natural profit taking to end the month around 4.5% lower with the Banking sector, led by the Arab Bank, continuing to attract the most attention and trading volumes. The macro-economic situation in Jordan continues to improve as the budget deficit for 2006 narrowed to 4.4% of GDP from 5.3% in 2005 while exports showed a 23% over the same period in 2006. Inflation remains a concern however as consumer prices increased by around 8% over the past year according to some measures.




 

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