Gulf blue chips rally to lift markets

13/05/2009 00:00 AST

Mobile Telecommunications Co (Zain) was among the key gainers on Gulf markets on Tuesday after winning the contract for Irans third mobile network licence.

Zains 2.6 percent rise was its largest for three weeks and many other Gulf blue chips also rallied to lift five of the seven regional indexes higher, clawing back some of Mondays losses as resurgent oil prices and robust global sentiment spurred local investors to buy.

Most Gulf markets have been rising since mid-March and the rally is likely to continue in the short-term, analysts say, but a correction will be likely if global equities retreat.

Bahrains index surged 2 percent to claim its largest one-day rise since Oct. 30, but the Qatar and Oman benchmarks fell for a second day. The other Gulf indexes advanced, although Dubais was the only other to rise by more than one percent.

"Regional stocks are taking their cue from international markets and oil prices," said Shakeel Sarwar, Sico investment bank head of asset management.

"This is a worry, because the dynamics of the Gulf region are different to the global economy, but this rally has stronger and longer legs than a lot of people thought."

Oil prices rose by more than a dollar to a six-month high of above $59 a barrel on Tuesday, while European stocks advanced despite losses on Asian markets.

Many investors sat out the early stages of the Gulf rally, convinced it was temporary, but they are now buying in at higher prices, boosting stocks further, analysts say.

Sarwar predicted a correction by the end of June.

"I highly doubt the markets will test the lows of February and March, but with some markets up about 50 percent since then, a correction of between 10 to 20 percent would be reasonable," he said. "A correction on global markets is likely to be the trigger for a fall locally."

Gulf stocks are lagging other emerging markets and so have more upside potential in the short-term, Sarwar added.

The Saudi index has made the largest gains regionally this year, rising by 25 percent, while the Kuwait, Qatar, Oman and Bahrain benchmarks are all in the red. Dubais measure is up 2 percent after plunging 72 percent in 2008, among the biggest drops worldwide.

Dubais weakness is likely to continue as the dominant property sector struggles, with few analysts predicting it will recover in the short-to-medium term.

"The sector could still see more project cancellations and cash flow needs to improve," Julian Bruce, EFG-Hermes director of institutional equity sales. "These problems need to be resolved before real confidence returns to investors."

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Reuters