Gulf markets to gain from US kick-start

Regional investors say optimism and positive sentiment from global markets after US Fed move likely to trickle down to Gulf markets this week.

The US Federal Reserve chairman Ben Bernanke on Friday announced a third round of monetary stimulus for the US economy. Richard Drew / AP Photo

Arabian Gulf stock markets are likely to get a boost this week amid heightened euphoria from global markets after the US Federal Reserve said it planned additional measures to kick-start the world's largest economy, investors say.

The Fed planned to start a third round of monetary stimulus, also known as quantitative easing (QE), to boost growth and reduce unemployment through the purchase of US$40 billion worth of mortgage securities a month, the Fed chairman Ben Bernanke said on Friday.

"We saw the impact after QE1 and QE2 on developed, emerging, regional equity markets and commodities," said Sebastien Henin, a portfolio manager at The National Investor based in Abu Dhabi. "The announcement should give a new and positive catalyst for equity investors."

In the United States, the S&P 500 Index rallied to its highest level since 2007 on Friday. In Europe, markets surged to a 15-month high. The European stock rally followed a stellar performance after finance ministers and policymakers met in Cyprus to discuss a framework that will empower the European Central Bank to police all banks in the euro-zone region.

India announced big reforms on Friday as the government came under the pressure of a potential credit downgrade. It increased the price on its subsidised diesel and announced measures to open up the supermarket sector to foreign chains such as Carrefour, Tesco and Wal-Mart. The government also plans to allow foreign investors to buy stakes in its flagging aviation sector.

"The European story, slow growth in the US and sluggish economic growth from India had a negative impact for the region," said Mr Henin. "We were scared of the euro crisis. But now it seems there will be greater visibility in the coming months, we have already seen the worst."

In the UAE, the Abu Dhabi Securities Exchange General Index rose 1.7 per cent to 2,608.75 last week, while the Dubai Financial Market General Index advanced 1.1 per cent to 1,573.94.

On Saudi Arabia's Tadawul All-Share Index, the Gulf region's largest and most liquid stock market, shares opened 1 per cent higher yesterday after the announcement. The benchmark has already risen 12 per cent so far this year. Oil rose to a four-month high on Friday, with crude traded in New York up 0.7 per cent to $99 a barrel. Prices are up 11 per cent from a year ago.

The Tadawul has already benefited from a surge in liquidity over the summer months and Ramadan. Traded value surged to 307bn Saudi riyals from June to August, an increase of 83 per cent from the comparative period last year, according to data released by the stock market. Trading activity traditionally declines by 50 per cent in summer, amid a lack of catalysts and investors working shorter hours.

Investors are positioning their portfolios in anticipation of earnings season, expected to commence in the first week of October for Saudi Arabia. The kingdom's companies are typically the first to report corporate results in the region.

Analysts forecast the country's fastest-growing sector, cement, to disappoint investors and underperform other industries. During the third quarter, the government lowered the price cap on the commodity to 240 riyals per tonne from 250 riyals as companies were demanding more fuel to operate their plants.

"This will affect revenue and profitability growth," said Farouk Miah, an analyst at NCB Capital in Riyadh.

"If you are selling the same amount as last year, your revenue is going to be down. Some companies are better positioned than others. The only ones that can grow are the ones that can sell more."

Saudi Arabia is expected to need two million homes by 2014 to keep up with the demands of a population that has quadrupled in 40 years.

In March, King Abdullah ordered authorities to build 500,000 low-cost houses in different parts of the kingdom. He has allocated 250bn riyals to implement the project.

For conservative investors, the advantage of the sector remains its dividends, which ranges between 5 to 6 per cent.

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