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Qatar Registers Highest Growth Performance in GCC Countries

By Jamal Al Majaida

The negative trend in G.C.C markets, set in October and accelerating in November, was partially reversed in December as five of the six G.C.C markets ended the month higher with the performance of the Qatari market being the most noteworthy as it ended up almost 20% higher.

North African markets continued to impress with Egypt and Morocco registering a growth of around 6% and 4% respectively. The Jordanian market recovered some of its large losses towards the end of the period and ended the month slightly lower.

The largest market, Saudi Arabia, was lower over the month as trading volumes were markedly lower due to the onset of the Eid holiday and persistently poor sentiment. The decline was broad based across all sectors with the industrial sector performing relatively well and ending the month unchanged. This was primarily due to market heavy weight SABIC which was around 10% higher at one point before profit taking erased the earlier gains leaving it only slightly higher for the month. The Banking sector was boosted by a powerful rally in SAMBA on the last two days of trading but nevertheless ended the month lower.

The Central Market Authority, the country's stock market regulator, has fined a prominent investor for an amount equivalent to $ 640,000, for carrying out fraudulent transactions and market manipulation. Stern actions like these are likely to strengthen the regulator's credibility and thus increase investor confidence in the long run.
The demand for the IPO's continues to be reasonable as the APPC (Advanced Polypropylene Company) IPO issue equivalent to US$ 134million was oversubscribed by more than 3 times.

In corporate news, Saudi Cable Company announced that it won a $123 million contract from Qatar General Electricity. The Savola group, one of Saudi Arabia's leading industrial companies, announced that it would invest more than $500 million in real estate in the Kingdom and the Saudi Arabian Fertilizer Company announced a proposal to distribute $160 million in cash dividends.

The Banking sector saw a series of positive announcements as the international rating agency, Fitch Ratings upgraded Saudi Hollandi Bank from BBB+ to A- and the Samba Financial Group was granted a license by the UAE Central Bank to open branches in the UAE. The Samba Financial Group also announced its intention to pay a dividend of 1.7 S.R a share ($0.45) for the second half of 2006 which represented an increase of 22% for 2006 payouts versus 2005. This was well received by the market and led to a strong rally in SAMBA shares on the last days of the month.

Valuations in the Saudi market continue to come down to reasonable levels versus other regional and international markets and we await a more sustained recovery pending a positive set of 4th quarter 2006 results which may be the catalyst to an improved market sentiment.

The U.A.E markets posted decent gains in December. The first two weeks saw a marked increase in trading volumes as the market absorbed the liquidity returning from the DFM IPO. This improved tone proved to be somewhat short-lived as profit taking reversed some of the earlier gains made in the first half of the month. On the economic front, the news remains encouraging as a recently released IMF report on the regional economic outlook for the Middle East and Central Asia shows that the UAE economy is performing better than its other G.C.C peers with average non-oil GDP real growth of 9.9% in the 2002-2007 periods. Importantly, the IMF is also predicting that inflation will come down to around 5% from the present rate of close to 8%.

In corporate news, EMAAR properties disclosed that it has projects worth USD 79.8 billion of which USD 60 billion were from outside the UAE and may be considering listings in India and Egypt to raise financing for projects in those countries while Abu Dhabi based Souroh Real Estate launched its Central Park project in Abu Dhabi at a construction cost of AED 500 million ($ 136 million). Dubai Investments announced the acquisition of Saudi American Glass Co which led to increased interest and trading volumes in this stock.

In other news the Telecom Regulatory Authority of UAE announced that the telecom giant Etisalat and the new operator DU reached an agreement on matters relating to interconnectivity. This is expected to change the dynamics of the telecom market in the country. In other telecom related news, there have been reports that Etisalat is expected to buy a stake in a Kuwaiti mobile operator but this was denied by Etisalat in an official notice to the Abu Dhabi stock market. Nevertheless, the telecom sector in the region continues to attract investor interest as operators eye opportunities in markets beyond their home bases.

The U.A.E markets are trading at some of the most attractive valuations in the region as corporate profit growth is forecast to be strong through 2007 and we would expect a more sustained recovery in this market as investor sentiment continues to recover.

The Egyptian market managed to make good gains in December after a slow start to the month. .The market gained momentum in the latter part of the month with the major trend being the gains posted by the smaller banks as investors reacted positively to the policy decisions in the finance/banking sector and also on speculation that some Gulf based banks were looking for potential take over targets.

A continuation of economic reforms and an increasingly vibrant consumer and corporate sector is expected to support the market and lead to further gains in the medium term despite further increases in interest rates to control rising inflation which the Egyptian authorities are now expecting to remain high in the medium term.

The Kuwaiti market, despite early weakness, finished the month on a mildly positive note. Trading activity picked up in the middle of December and volumes were about 30% higher than the beginning of the month with most activity being in the investment, services and real estate sectors. Kuwait's second largest mobile operator, NMTC (Wataniya) witnessed large trading volumes and price increases along with MTC as speculation increased that these companies were a target for other large G.C.C based telecom providers.

In other news, National Bank of Kuwait, along with Saudi based SAMBA and Qatari Doha Bank, has been granted a license to operate in the U.A.E. The Kuwaiti market regulator continues to crack down on market manipulators with the bourse confirming that it barred shareholders in 13 listed firms, including Gulf Bank and Ahli Bank, from selling shares for six years for breaking disclosure rules. We see this as a welcome development in that it shows that the regulator is serious about increasing governance and transparency which are essential ingredients for the long term viability of stock exchanges.
With market expectations of good corporate profit growth in 2007, the forecast price earnings ratio of around 10.5 for the market as a whole continue to make this a very attractively valued market.

The Omani market witnessed moderate returns during the period. The news that attracted most attention was Oman's decision to not join the monetary union of the six member nations of the Gulf Cooperation Council (GCC) as they view the 2010 deadline as too ambitious. This development had no immediate impact on the market however.

In corporate news, Bank Sohar announced the launch of an IPO of 40mn shares at a price of OR0.52 per share. The subscription period is from December 09, 2006 to January 07, 2007.

Valuations in the Omani market are no longer as attractive versus other G.C.C markets as they once were but given the decent outlook for corporate profits and the Omani economy in general, we remain positive on this market.

The Qatari market, after more than 4 months of negative returns, changed course and ended with a powerful late month rally that totally erased the large November losses. Trading volumes steadily improved towards the end of the month as investors rushed to purchase cheap shares and stocks such as Industries Qatar and Qatar National Bank were around 15% higher while Qatar Islamic Bank posted a huge 30% increase.

After the large losses of the past 4 months, valuations in the Qatari market have approached much more reasonable levels and regional investors are expected to give this market more attention in the medium term as economic and corporate profit growth in Qatar continues and the stock market develops more depth.

The Jordanian market, despite a steep decline in the middle of the month, was able to recover substantially in the last two trading days of the month and ended up only slightly lower for the period. Trading volumes continue to be low amid a lack of clear direction in the market. Economic news continues to be positive with workers remittances and inward investments supporting the balance of payments and official reserves but the market is lacking direction and it remains to be seen whether 4th quarter profit releases will have a positive impact on this market.


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