x Abu Dhabi, UAESunday 21 January 2018

Ramadan brings rest to battered stocks

Slower trading pace a welcome break from market battering.

For many equity investors, the slower pace of trading activity during Ramadan comes as a welcome respite from the rocky performance of the region's financial markets in recent weeks. Since July, GCC markets have plunged in value, beset by a number of factors including international investors withdrawing their funds for use closer to home, corruption allegations and fears that a property bubble could deflate. As a result, the only market that avoided a significant drop during this period is the Saudi Tadawul, which has recorded a modest gain thanks to its announcement last week that foreigners would be allowed to invest on the exchange by using swaps.

Now comes Ramadan, when trading volumes have traditionally fallen to low levels. Trading hours are cut back on many exchanges; the Tadawul, the Cairo & Alexandria Stock Exchange and the Kuwait Stock Exchange will all reduce their hours starting today. Meanwhile, investors and companies both tend to defer significant decisions until after the month of Ramadan. A large financial services company had scheduled its meeting after Ramadan, said Ingmar Burgardt, the regional managing director of BHF Bank.

The total volume of Tadawul stock traded during Ramadan last year was less than half the average monthly amount traded for the entire year; and the amount traded on the Cairo & Alexandria Stock Exchange in Ramadan 2004 was a third of that year's average monthly volume. Despite the trading lull, stocks do not tend to fall in value during Ramadan. In fact, taking all the Ramadan seasons and all the GCC and Egyptian exchanges into account, eight out of 10 have posted gains during this time, according to data from Zawya.com.

However, there is little to suggest those gains are more than any other period during the year, analysts said. The swings during Ramadan on any given date over the five-year period from 2003 to last year range from a fall of 7.03 per cent, which the Tadawul recorded in 2006, to the rise of 14.08, which the Tadawul hit in 2004 - which is similar to the swings of many other months during that period.

Amer Halawi, the investment research managing director at the National Investor, said there did not appear to be any special Ramadan impact in terms of share prices. "With the data we researched last year, we found there is no seasonal Ramadan effect on the markets - there is no 'Ramadan trade'," he said. He added that with so many factors at play right now - including a scarcity of cash, concerns about property prices and volatility in the energy market- it was especially hard to predict Ramadan's effects. Indeed, investors may wait until next month to sink their money into some lucrative opportunities; a pipeline of IPOs will be ready to list on the Saudi and Kuwaiti exchanges immediately after Ramadan.

That could leave many investors sitting on their money until then, further hitting liquidity. Mr Raghu, the head of research at Markaz in Kuwait, reiterated the credit supply issue - he said that while Ramadan markets did not usually show specific trends because they were so quiet, that may be exacerbated this time because liquidity was "still an issue because it is not going to be available".