Dubai's rally stalled on Monday but trading volumes surged as investors chased expectations of a possible upgrade for the United Arab Emirates (UAE) by index compiler MSCI. Saudi banks rallied to a 12-month high, helping lift the bourse. Dubai's index slipped 0.3 percent, easing off its 54-month high as investors booked profits after an intraday high of 2,500, which posed as technical resistance level.
MSCI will announce next week whether it will upgrade the UAE to emerging market status. It currently ranks the country as a frontier market. "International institutional investors are speculating on an MSCI upgrade," said Mohammed Yasin, managing director of Abu Dhabi Financial Services. "The high volumes and the performance has attracted them."
"I'm not worried about the levels, many stocks fundamentally justify the price and more, but the speed of the rally means we're setting ourselves up for a correction," Yasin added. The number of shares changing hands reached 1.29 billion, the first time daily volumes exceeded a billion since June 2009. Elsewhere, Saudi Arabia's banking share index surges 2.5 percent to a one-year high, catching up with market gains on expectations that loans to telecom operator Zain Saudi will not have to be written off.
"Banks have been underperforming the market for more than two years... the rise is more technical rather than due to expectations of earnings," said Mahmood Akbar, a banking analyst at NCB Capital. Zain Saudi jumped 9.7 percent to an eight-month high after receiving government approval to defer licence-related fees totalling $1.49 billion over seven years. The operator has $3 billion worth of loans maturing this month, including a $2.4 billion Islamic facility arranged by Banque Saudi Fransi.
"Zain Saudi owed a large amount to banks and the government's move today will encourage banks to solve the pending loans on their books," said Abdullah Alawi, assistant general manager and head of research at Aljazira Capital. "People were worried the loan would hit Saudi Fransi." Shares in Banque Saudi Fransi rose 3.3 percent. "The agreement... to defer the licence (fees) was seen to be a positive for Saudi Fransi," said Akbar.
"However, we note that Zain Saudi continues to negotiate for a breather period of two years where it does not pay interest on the loan and this could impact Saudi Fransi's net interest margins." The kingdom's benchmark advanced 1.1 percent, extending 2013 gains to 11.1 percent to hit a fresh 13-month high. In Kuwait, the benchmark rose 1.9 percent, rebounding after sessions of losses as large-caps gained.
Recent declines on Kuwait's bourse were expected to be short-lived as a bullish sentiment remains intact after firms reported positive earnings for the first three months of 2013. "The fact that numbers are at par on last year shows these companies are doing well and there is stability to ride this wave," said Jasem al-Zeraei, head of institutional sales at NBK Capital. The market is up 38.2 percent year-to-date.
National Bank of Kuwait, the Gulf state's largest lender, reported a flat first-quarter net profit but beat analysts' estimates. The stock added 1 percent. Large-caps led gains on Monday as the flow of funds shift from smaller caps, many of which have doubled in an early-year surge. Investors are now risking more in large-caps. First Dubai Real Estate has surged 328 percent year-to-date, while NBK, the largest listed stock, is up 6.1 percent over the same period.
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