Political risk to be prime market driver

Investors will weigh increasingly attractive valuations of local companies this week against the risk of continued political instability in the region.

"Political risk will remain the key driver to equity markets. Institutional investors are revisiting their asset allocation strategies to maintain lower exposure to the equity markets," said Tariq Qaqish, a fund manager at Al Mal Capital in Dubai. "No matter how attractive the valuations are, medium to long-term investors will be reluctant to be fully invested until they are assured of political stability."

As a result, most analysts do not expect a complete rebound on the UAE exchanges from the declines last week. The Abu Dhabi Securities Exchange General Index declined 0.7 per cent, while the Dubai Financial Market General Index declined 3.7 per cent. The ADIB Islamic Index, a gauge of Sharia-compliant companies, declined 5.1 per cent.

"Equities look like they are reaching a level where they have bottomed out. From a fundamental perspective investors should be loading up. There are technical entry points, but there is no conviction to buy right now," said Haissam Arabi, the chief executive of Gulfmena Alternative Investments, an asset manager in Dubai.

Some brokers argue the country's bourses have been unfairly penalised for their proximity to the unrest in other countries.

"Our markets are being punished as if we are listed in Bahrain or Tripoli," said Ameed Kanaan, the general manager at Al Jazeera Financial Services in Dubai.

Investors are forgetting that the UAE and Gulf countries such as Qatar and Saudi Arabia are "exceptional cases" that enjoy security, strong economies and solid bank regulations, he said.

Insurance House, based in Abu Dhabi, is scheduled to hold its initial public offering (IPO) today. Although it is a relatively small amount, Dh66 million, the first IPO in the UAE in more than two years will be a test of investor sentiment.

The Emirates Securities and Commodities Authority (SCA) announced over the weekend the delivery versus payment system would be in place by the middle of the year. The process is a key requirement for the UAE markets to be upgraded to an "emerging market," by the index provider MSCI Barra. Delivery versus payment is a securities industry procedure in which payment for a security is made at the time the security is delivered.

"We hope this would reflect positively in foreign investment surplus," said Abdullah al Turifi, the chief executive of the SCA. "We are in the final stages of the implementation and have worked with brokers to guide them and take the necessary steps to achieve this goal."

Last week, financial markets from New York to Shanghai slumped as oil prices soared, fuelled by civil unrest in Libya and other Middle East countries. The regional bourses were not immune to the selling pressure, with Kuwait the only market to finish the week in positive territory.

Qatar's QE Index declined 4 per cent last week. Oman's measure lost 3.6 per cent and Bahrain's All-Share Index lost 2.6 per cent.

Saudi Arabia's Tadawul All-Share Index declined 1.1 per cent. King Abdullah announced last week US$37 billion in new public spending, including giving all government employees a 15 per cent pay raise and dramatically increasing spending on social welfare programmes, housing and education.

Education reform and job creation in Saudi Arabia and other Arab countries will remain in focus in coming months as unrest in parts of the Mena region renew the urgency to address those issues, said John Sfakianakis, the chief economist at Banque Saudi Fransi.

Egypt's bourse will not open before Tuesday, exchange officials said. A final decision is due to be made today as to when it will reopen, said Khaled Serry Seyam, the bourse chairman.

halsayegh@thenational.ae

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