MSM recoups losses despite volatile trade

05/02/2011 00:00 AST

The wave of confidence that witnessed on the global equity markets turned mixed last week as wariness over escalating violence in Egypt and rising oil prices muted optimism. At the same time the regional bourses were spurred by selling in volatile trade after the unrest started consuming Egypt, which sits astride the strategically vital Suez Canal and at the centre of Middle East.

But analysts say the Egypt turmoil may not have a lasting impact on Gulf markets and investors may find buying opportunities at lower prices. Yet they also add that the mood may sour if tension in the country shows signs of escalation. Egypt has been one of the most popular destinations for emerging market investors after Brazil, Russia, India and China (BRIC). According to Pictet Asset Management, foreign investors hold about $20 billion of Egyptian assets split between the equity and fixed income markets.

The country is now at the centre of everybody's radar and the market is trying to find a level that makes sense for what is happening there and the ramifications for the region. "For the Gulf region, we are highly positive on the long-term investment story. We remain positive," according to a Credit Suisse research note. Arab equity markets including Saudi Arabia, Dubai, Bahrain and Qatar tumbled suffering their largest declines in at least eight months. Egypt remained closed for the consecutive ninth day on Thursday. Kuwait made modest gains.

Across the board selling by foreign investors was the highlight of the week’s trading. Fear of Egyptian unrest spreading to GCC countries caused foreigners to take a cautious stand in the markets. In Oman, the Muscat Securities Market also felt the heat with the benchmark index tanking by 3.02 per cent on Sunday, its biggest intraday loss in percentage terms since May 2010. The market remained volatile with relatively high trading volume during the week.

However, it recouped a large portion of its losses during the rest of the week despite bargain hunting in various stocks at lower levels. According to Joice Mathew, Senior Manager, United Securities Research, long term investors rushed to seize the opportunity from the market correction as the economic and corporate fundamentals of Omani stocks remain largely positive and unchanged. This has resulted in increased trading volume.

“The quick recovery in the markets also points to the fact that these movements were driven by the sentiments of foreign investors who tried to see the governing system of MENA countries as a single block. The ongoing earnings season and the following dividend season are the major catalysts which should support the market”, he says.

Joice says: “The GCC countries would be largely unaffected from the unrest. Higher oil prices and budget surpluses should provide the governments confidence to continue with their record spending plans. This should result in keeping the economic outlook positive, thereby attracting investor interest in the bourse”. On the flip side of it, he sees the effect of a spillover of Egypt unrest getting reflected in the crude prices. A rise in oil prices will cause inflation to accelerate, creating concerns about the pace global economic recovery.

However, optimism in the emerging markets bolstered by a series of positive reports in January from the US, Europe and many parts of Asia offset some recent disappointments.

Shares in Shanghai edged higher despite fears that the Chinese economy was slowing, although there were conflicting views as to whether inflation pressures, still strong, were easing. US equities strode forward as investor sentiment was lifted by strong earnings reports from industry heavyweights and giant pharmaceuticals including Pfizer.

Oman Daily Observer