Stocks in the Gulf bucked the usual summer lull last year and rose in tandem with global markets. But analysts and investors say the prospects for a repeat this year are dim. Global leaders are looking to preserve a fragile economic recovery and Gulf investors find little to cheer about in second-quarter company earnings.
"Let's face it, it's going to be slow," said Yazaan Abdeen, a fund manager at ING Investments in Dubai. "Barring any earnings surprise, and we don't think there are many in store, it will be slow trade. "I think everyone is positioned where they want to be." Volumes on regional bourses traditionally decline in the summer as traders and wealthy investors skip town for cooler climes. With Ramadan coming up in less than two weeks, few observers are optimistic about a pick-up in trade even if sentiment about the global economy improves.
Saad Chalabi, an institutional trader at AlRamz Securities in Abu Dhabi, said he expected the summer to be slow but predicted that tighter links with foreign markets would be a major driver for Gulf markets once investors started to come back. "The way it's looking now with the international markets, I think the UAE markets are just the laggard," he said. "They will catch up eventually." Mr Abdeen said profits and provisions for bad loans at UAE banks would also influence a recovery in Gulf economies and markets this year.
"Most banks have come out with their results and provisions are below expectations," Mr Abdeen said. "But until we adopt the policy of confessing actual losses, we can't talk about real economic growth and a turnaround in the stock markets." Global shares and the oil market retreated after the talk in June of fragility in the global economic recovery and a possible double-dip recession following the Greek debt crisis in May. European equities, however, staged a rebound last month, gaining 4.9 per cent.
There are also signs of recovery in US stocks and oil has traded consistently at more than US$70 a barrel. Mr Chalabi said those factors signalled that global shares could sustain a rally that would eventually trickle down to the regional markets, such as those in the UAE. The markets in the UAE gave up modest gains in the third week of last month and closed lower last week. The Dubai Financial Market (DFM) General Index retreated by 1 per cent to 1,512.40, while the Abu Dhabi Securities Exchange General Index moved sideways on thin volumes, easing 0.2 per cent lower to 2,545.80.
The Kuwait and Qatar benchmarks firmed by 1 per cent last week to 6,654.90 and 7029.45, respectively. Muscat shares rose by the most in the Gulf last week, adding 2.8 per cent to 6,294.55, while Bahrain's key index lost 0.5 per cent to 1,239.92. Saudi Arabia's Tadawul yesterday closed its first session of the week with a gain of 0.2 per cent to 6,283.73, buoyed by oil moving closer to $79 per barrel late in recent days.
Closer to home, DP World has been a stellar performer despite a drop in the port operator's trading volume in the three weeks since 14 NASDAQ Dubai stocks started trading through the DFM's system. Its shares rose by 10.2 per cent last week. The FTSE NASDAQ Dubai UAE 20 Index rose 0.3 per cent last week, while the ADIB Islamic Index on MSCI UAE decreased by 1.9 per cent to 911.9. Chahir Hosni, an equities sales manager at the Egyptian investment bank EFG-Hermes in Dubai, said there was more interest in local equities and institutional investment was gradually improving. He saw room to play in small-value stocks such as RAK Properties and Dana Gas in Abu Dhabi.