Stock markets in the United Arab Emirates and Qatar outperformed the region once again on Tuesday because of the approach of MSCI's upgrade of those markets, even though many institutions believe many shares are now richly valued. Dubai's main index climbed 1.1 percent to 5,009 points, just below technical resistance at 5,011 points, the neckline of the minor head & shoulders pattern triggered earlier this month.
-- Saudi's Maaden falls after appoints advisor for rights issue Abu Dhabi gained 1.0 percent to 5,099 points; it faces strong resistance on last month's multi-year peak of 5,249 points. Local retail investors are counting on fresh inflows of passive funds around the end of this week, when international index compiler MSCI will upgrade the UAE and Qatar to emerging market from frontier market status.
These flows are likely to be relatively minor - a few hundred million dollars - and may not be enough to offset profit-taking in the markets after their strong rises earlier this year. For that reason, many institutional investors have become cautious. "The DFM index is trading at a valuation level of 19.4x, much higher than the Qatari and Saudi Arabian indices which are trading at PE multiples close to 14.5x, discouraging international investors tracking the MSCI emerging index," Jeddah-based Alkhabeer Capital said in a report.
Nevertheless, a significant number of retail investors remain willing to put fresh money into the markets. In Dubai on Tuesday, they once more focused on stocks that will be included in the new MSCI emerging index, including Emaar Properties , which rose 1.5 percent, and builder Arabtec , which shot up 9.2 percent. Arabtec, which saw its highest trading volume since January, may have attracted fresh retail investor attention after it said it was "interested" in building a new airport in Egypt and "has the necessary support from the Egyptian leadership".
It was the latest in a series of bullish statements by the company about its ambitions; these have often triggered new buying even though many analysts believe the stock may have become overvalued for now. The Dubai-listed shares of Gulf Finance House sagged 2.7 percent after its unit GFH Capital said its former deputy chief executive David Haigh had been arrested in Dubai over allegations of fraud and embezzlement. In Abu Dhabi, the index gained 1.0 percent to 5,099 points. The most heavily traded stock was Aldar Properties, up 5.1 percent.
"The recent volatility witnessed in Gulf equities should continue in the ensuing weeks given that we are now entering high seasonality effects due to the summer, and retailers tend to cash in profits," said John Sfakianakis, chief investment strategist at Saudi Arabian investment firm MASIC. But he added, "There will be plenty of investors who'll see this as an opportunity to buy as valuations look more attractive. I'm an optimist for the coming weeks with higher volatility."
QATAR The Qatari index rose 0.8 percent to an all-time closing high of 13,500 points after the country's emir ordered listed companies to raise their foreign ownership limits to 49 percent. The order was announced in a brief bourse statement which did not give a time frame. At present, foreign ownership is usually limited to 25 percent, though some firms have already been raising their ceilings above that level.
Once implemented, the emir's order could have a major impact in attracting foreign money to Qatar, and in the long run even help to secure developed market status for the bourse. Although MSCI is about to upgrade Qatar, it is limiting the weightings of four major firms in its index because of low foreign ownership limits. The most heavily traded stock was Vodafone Qatar, which rose 2.9 percent. Mesaieed Petrochemical jumped its 10 percent daily limit. In Saudi Arabia, shares in Saudi Arabian Mining Co (Maaden) dropped 1.7 percent after the company said it had appointed HSBC Saudi Arabia as financial advisor for its planned 5.6 billion riyal ($1.49 billion) rights issue, which will be dilutive for shareholders.
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