Kuwait banks hit a 27-month high on Tuesday as traders bought in ahead of quarterly earnings, but valuations may have run ahead of fundamentals. Banks stocks have surged since Kuwait last year unveiled a $104 billion infrastructure spending plan - to be part-financed by banks - but few details have since emerged.
"Given the sheer size of the plan, I would wait to see concrete signs that it has passed through all the necessary hurdles first," said Ibrahim Masood, senior investment officer at Mashreq Bank. "Fundamentals need to catch up with where Kuwait stocks are trading, especially when you look at some of the structural issues Kuwait faces. Kuwait doesn't look very exciting from a short-term perspective."
Ahli United Bank rose 4.6 percent and Burgan Bank added 1.8 percent, helping the bank index climbs 0.5 percent to its highest finish since October 15, 2008. Abu Dhabi's Aldar Properties, which has made a loss for four straight quarters, fell 4.2 percent to a record low, with slumping real estate prices likely to further dampen sentiment for the indebted developer.
Earlier in January, Aldar said it would issue a convertible bond and sell some assets to Abu Dhabi's government for $4.5 billion, and take $2.9 billion in impairments. "The restructuring plan addresses Aldar's liquidity issues for the medium term, after that it will depend on whether the company's recurring income operations pick up," said Jad Abbas, EFG-Hermes real estate analyst. "We do not rule out a second round of government transactions to support Aldar beyond 2013."
A Reuters poll last week forecast Abu Dhabi and Dubai house prices would make further double-digit declines. The latter's prices are about 60 percent below a 2008 peak. "I don't think we will see a recovery in the UAE real estate sector in 2011 - there is still more supply coming on stream, putting pressure on prices and rents, but we need to differentiate between Dubai and Abu Dhabi," said EFG's Abbas. "Dubai is further down the cycle and Abu Dhabi has further to go."
Abu Dhabi's index slumped to a 16-week low, as Dubai real estate stocks also slid. Emaar Properties dropped 1.5 percent and builder Arabtec fell 2.2 percent. "Foreign investors are still pretty quiet, with buying in select stocks based on individual news flow," said Matthew Wakeman, EFG-Hermes managing director for cash and equity-linked trading. "Other than that, the interest is still on Qatar, Egypt and to a lesser extent Saudi Arabia."
Saudi Basic Industries Corp and Rabigh Refining and Petrochemical Co each fell 0.7 percent. "The Saudi market is trading sideways and investors are in a cautious mood today," says a Saudi-based fund manager who asked not to be identified. "Weakness in oil prices gave day traders an excuse to book profits in petrochemicals.
Banque Saudi Fransi rose 1 percent and rival lender SABB added 2.4 percent. Oil was down 1.1 percent at $86.80 per barrel at 1322 GMT after an overnight rate increase in India and a surprise contraction in the UK economy fanned concerns about the pace of a global recovery.