Egyptian stocks will be in focus this week with a flurry of corporate events expected to influence investor sentiment.
The EGX 30 Index has risen 62.5 per cent this year, after parliamentary and presidential elections showed the country was moving towards political stability.
But analysts fear the market has moved ahead of itself.
"The market has been rallying on optimism and speculation that we were heading somewhere," said Wafik Dawood, the head of institutional sales at Mega Investments Securities in Cairo. "But there is no significant recovery in the real economy so far. On the ground, companies are still struggling."
The market is trading at 8 to 9 times earnings, compared with 11 to 12 for emerging markets. Egypt is one of only two countries in the region to be considered an emerging market by the international index compiler MSCI. "The valuations are not too high but it's still a tough call when the market has rallied so much."
But the index is still 20 per cent below levels traded prior to the country's revolution, he pointed out. "Investors with money on the sidelines are waiting for a dip in the market before the year end, before starting to allocate cash in their portfolios again," Mr Dawood said.
Last week, it emerged the heavyweight Qatar National Bank was in early talks to acquire National Société Générale Bank (NSGB).
"We have been seeing a lot of interest in Egypt's banking sector and expect a lot of speculation to happen around certain names in the next period as European owners consider selling holdings to shore up cash," Dawood said.
Meanwhile, NSGB said it was negotiating to buy a controlling stake in its subsidiary joint venture financial leasing firm Sogolease. It already owns a 40 per cent stake and is considering adding a further 20 per cent.
Egypt's banking sector has been helped by the easing of liquidity in the last few months after more than a year of turbulence.
"The situation is improving," Mr Dawood said. Egypt's central bank began selling treasury bills to local lenders to save the country's currency, the pound, amid a capital flight and as foreign investors exited the market following the popular uprising that led to the toppling of Hosni Mubarak.
"The yields on these bills are declining and demand for them is falling. We expect banks to start offloading their holdings and cleaning their books," he said.
Banking aside, a number of companies and two court trials will be driving Egyptian equities this week.
Arab Cotton Ginning will hold a general assembly meeting today to approve year-end finances. Also today, the paints manufacturing company Pachin will host its general assembly meeting to approve finances and dividend distribution.
Tomorrow, the steel tycoon Ahmed Ezz will appear in court on charges related to the acquisition of one of his subsidiaries, Al Ezz Dekheila Steel, from the previous government. On Tuesday, Suez Cement goes ex-dividend, the last day in which a shareholder is eligible to receive dividends for the previous period. Suez Cement will pay investors on Thursday a cash dividend of 1 Egyptian pound per share.
Also on Thursday, Ahmed Ezz will appear in court again, this time on allegations of money laundering and embezzling 6.2 billion pounds worth of public funds.
In the UAE, markets will be in wait-and-see mode ahead of thirdquarter results.
"People are waiting to have an insight to see how companies have performed, whether they are on the right track or not," said Nabil Al Rantisi, the managing director of brokerage at Mena Corp in Abu Dhabi.
"The market has already rallied quite a bit. I would expect investors to begin taking some profits and for the market to calm down for a while, even trading sideways in the coming sessions."
The Abu Dhabi Securities Exchange General Index is up 8.3 per cent so far this year, trading at 2,602.97, while the Dubai Financial Market General Index is up 15.9 per cent in the same period, trading at 1,569.50.
"People want to wait and see how the end of the year will play out to determine what the dividends will look like," Mr Al Rantisi said.