May 25, 2011
*Egypt likely to rebound next week; UAE banks to fall
*Saudi petchems seen volatile on oil price swings
CAIRO/DUBAI, Multi-billion aid packages and the potential criminal trial of former ruler Hosni Mubarak should give Egyptian stocks a boost next week.
Politics will continue to be the main catalyst as investors assess Egypt’s ability to prove it can move smoothly to a functioning government in coming months.
“The key to Egypt’s future is how the politics develops in the near term, and what sort of balance emerges between the forces at play,” Royal Bank of Scotland said in a May 23 research note.
Plans by activists to stage protests on May 27 against the interim military council have sent jitters through the market, weighing on shares. On Tuesday, Mubarak was ordered to stand trial for the killing of protesters and could face the death penalty, scotching speculation the former leader would be spared public humiliation by Egypt’s military rulers.
Still, Egypt’s economy has been getting a steady boost in the past few days by a string of support packages announced by the United States, Saudi Arabia, Qatar, the World Bank and the European Bank for Reconstruction and Development.
More support is expected to be announced at the Group of Eight meeting in France this week, and the International Monetary Fund now has a mission in Egypt to see how it can help.
UAE banks on a slippery slope elsewhere, weak first-quarter earnings and continuing provisioning will see UAE-listed bank stocks on a slippery slope, while valuations dampen investor interest.
“Local banks are working through their problems, says Akram Annous, MENA strategist at Al Mal Capital.
“But if you look at bank stocks struggles in other markets that have experienced a difficult deleveraging cycle in property you will realize that the UAE is not unique — there is just not that much investor interest in this space.
“Global bank stocks look cheap based on historical standards, but at the same time Emirates NBD is trading at a higher price to book than Bank of America and most of Japan’s financial sector.”
Dubai’s banks have fallen as much as 4.2 percent in May amid low buying interest that has led UAE bourses tumble to near six-week lows.
UAE banks are likely to see conservative loan growth this year partly due to new central bank regulations restricting certain lending practices and because of exposure to a battered real estate sector.
Analysts are expecting mid-single digit loan growth for the year and elevated non-performing loans throughout 2011, in part linked to the commercial property market.
“The commercial property market is taking a double hit from falling rent and falling occupancy levels, so even if occupancy levels on new buildings reach 50 percent, that would still mean cash flow to owners is down about 75 percent from expectations,” said Raj Madha, Rasmala’s senior banking analyst.
Saudi Arabia’s petrochemicals are seen volatile in the coming week as they track fluctuating oil prices, while medium-term outlook is positive.
“If oil falls lower, you will see a re-rate in petrochemicals - 10 percent will come out of that space if we work our way back down to $85. But if we stay right around a $100, that’s a sweet spot for them,” says Al Mal’s Annous.
Oil prices are expected to remain range-bound in the near term, with spot WTI trading between $95 to $105 per barrel, according to Ankit Gupta, senior research analyst at Securities & Investment Co.
“We expect regional petrochemical shares’ to evince near-term volatility driven by volatile oil prices and global economic concerns,” Gupta says.
The petrochemical index has risen as much as 5.2 percent in 2011.
“High plants’ operating rates coupled with margins of regional petrochemicals will boost 2Q11 earnings, in our view,” Gupta says.
http://www.arabtimesonline.com/NewsDetails/tabid/96/smid/414/ArticleID/169585/reftab/96/Default.aspx
