Fed Jitters Dampen Most Of Gulf; Rate Cut Boosts Egypt

Renewed worries about the possibility of U.S. monetary tightening caused most Gulf stock markets to drop on Sunday, while Egypt rose on the back of an interest rate cut by its central bank.

Like other markets around the world, Gulf bourses rose last week in response to the U.S. Federal Reserve’s surprise decision to maintain its monetary stimulus. But on Friday, St. Louis Federal Reserve Bank President James Bullard said in an interview on Bloomberg TV that a start to winding down the stimulus was possible in October, depending on economic data.

So the euphoria surrounding last week’s Fed decision is fading quickly. Although the booming Gulf is less vulnerable than most regions to tighter U.S. monetary policy, its markets are near multi-year peaks that were hit in August, leaving them vulnerable to profit-taking.

“Renewed talk that the Fed could be slowing down the stimulus and the U.S. markets are affecting us – foreigners are cutting positions,” says Yassir Mckee, wealth manager at Al Rayan Financial Brokerage in Doha. “Some are selling now to show cash on the books, because it’s almost the end of the third quarter.”

Qatar’s main index fell 0.9 percent, trimming its year-to-date gains to 17.1 percent. Telecommunications operator Ooredoo was the main drag, falling 1.9 percent.

Mckee said speculation that state-run Qatar Petroleum might list its units on the exchange was prompting some local investors to sell stocks and hold cash in order to buy into a possible initial public offer that could come as early as October.

Hussain al-Abdulla, executive board member of Qatar Holding, the investment arm of the country’s sovereign wealth fund, said in May that Qatar Petroleum planned to offer shares in four of its units in coming years.

A multi-billion dollar IPO of Doha Global Investment Co, a new $12 billion investment firm backed by assets from Qatar’s sovereign wealth fund, appears to have been shelved because of technical challenges and, perhaps, Qatar’s change of government in June. So there is speculation that to develop the stock market, the new government may proceed with the Qatar Petroleum IPOs, which might prove simpler and more straightforward.

Trading volumes in the Gulf were mostly modest on Sunday as Saudi Arabia, by far the region’s biggest market, was closed for a two-day National Day holiday.

In Dubai, the index gained 0.6 percent to 2,681 points, a near four-week high, as buyers returned after a dip early in the day. The market faces major technical resistance on its August peak of 2,762 points.

Mashreq Bank surged its daily limit of 15 percent to a near four-month high, extending its gain since the bank said it would increase its foreign ownership limit to 20 percent. It jumped 15 percent on Thursday; trading remains very thin, however.

Union Properties, a popular target for retail investors, climbed 12 percent.

EGYPT

Egypt’s bourse rose to a fresh five-week high as local investors bargain-hunted, and as Thursday’s 0.5 percentage point cut in official interest rates helped sentiment.

Shares in Arabia Cotton Ginning jumped 9.9 percent to 5.22 Egyptian pounds, their highest since November 2010, after the firm said it was looking to add real estate as a business line and was waiting for approvals to sell some of the land it owns. It faces strong chart resistance around 6.0 pounds, which has capped it since late 2008.

“Locals have been active in the last period and are the driving force,” said Amr Reda, assistant vice-president at Pharos Securities Brokerage in Cairo.

“On the political front, everyone is waiting for the constitution to be drafted. The security situation is better than before and there is a strong belief that the army is dealing with insurgency.”

Last week, security forces stormed a town near Cairo dominated by supporters of ousted Islamist President Mohamed Mursi, exchanging fire with militants. Many Egyptian investors view such violence as positive overall, since it suggests authorities are taking a strong line against militancy.

As expected, the central bank cut its overnight interest rate by 50 basis points on Thursday; although the move may not prompt any immediate rise in corporate investment, it added to a feeling that economic conditions might gradually be normalising.

Foreign investors mostly still appear to be staying out of the stock market, however, suggesting its rally could fade quickly as the main index nears technical barriers.

The index rose 1.0 percent on Sunday to 5,587 points, its highest level since Aug. 14. It faces major technical resistance at 5,682 points, the August peak hit in the wake of Mursi’s ouster.

SUNDAY’S HIGHLIGHTS

DUBAI

* The index rose 0.6 percent to 2,681 points.

ABU DHABI

* The index slipped 0.1 percent to 3,809 points.

EGYPT

* The index rose 1.0 percent to 5,587 points.

QATAR

* The index dropped 0.9 percent to 9,786 points.

KUWAIT

* The index slipped 0.03 percent to 7,846 points.

OMAN

* The index fell 0.3 percent to 6,581 points.

BAHRAIN

* The index dropped 0.3 percent to 1,195 points.

Source: Reuters