Saudi Arabia and Qatar to set the tone

Traders will look towards second-quarter results for direction this week as macroeconomic factors including the Greek debt crisis recede and play a diminishing role in decision making.

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Companies in Saudi Arabia and Qatar are among the first to report earnings so the markets in both countries will be of particular interest.

Both markets are also home to some of the largest companies in the Gulf, such as the petrochemicals giant Saudi Basic Industries Corporation and Qatar National Bank (QNB), the region's largest lender.

QNB last week reported estimate-beating second-quarter results with a profit of 1.8 billion rials, an increase of 25.8 per cent on the same period last year.

The wider Qatari benchmark, the QE Index, advanced 3.6 per cent last week to close at 8,502.49 points. That is despite worries over whether banks' profitability will be affected by an order from Qatar's central bank in February to shut down Islamic banking operations by the end of this year.

In Saudi Arabia, analysts said lending growth would act as a key test of the rate of recovery now that bad loan provisions are largely behind the sector.

The Saudi Tadawul All-Share Index rose 0.24 per cent to 6,628.30 points yesterday.

Over the weekend, second-quarter results from Almarai, Saudi Arabia's largest food producer by market value, and Arriyadh Development, a property company, boosted trading on the market.

Almarai reported a 1.8 per cent rise and Arriyadh a 24 per cent increase in net earnings for the second quarter, compared with the same period last year.

Yesterday Almarai fell 0.3 per cent to 96.5 riyals, while Arriyadh edged 0.7 per cent higher to 15riyals.

Market commentators said the better news from Greece and the likelihood of improved economic data from other countries after recent weakness would lead to recovery in markets.

"Local equities could show some strong performance into the end of the year," said Gary Dugan, the chief investment officer at Emirates NBD's private banking unit.

"We also expect local equities to gain increasing support from international investors," Mr Dugan wrote in a note to investors.

He said if the index compiler MSCI decided to upgrade the UAE to emerging-market status then the cheapness of Dubai stocks, which are trading at a price-to-earnings multiple of 8.5 compared with 11.1 for the whole emerging market index, "would not be lost on international investors".

Trading on the Dubai Financial Market has been subdued in the past few weeks and ended last week 0.4 per cent higher at 1,557.85 points.

Analysts will also turn to Abu Dhabi's heavyweight banks as a source of solid earnings results. The sector has drawn buying interest in the past few weeks in anticipation that the capital's banks will perform better than Dubai's because of strong support from the Government.

Although problem loans at UAE banks increased to 8.3 per cent last year from 4.9 per cent in 2009, including the exposure to Dubai World's US$24.9 billion debt restructuring, the exposure of Dubai banks to government-related entities will lead to increased non-performing loans (NPLs) compared with Abu Dhabi, Moody's ratings agency wrote in a note.

But the note added that NPLs were expected to peak this year at 6 per cent to 8 per cent in Abu Dhabi and 11 per cent to 14 per cent in Dubai, citing the upcoming Dubai Holding $10bn debt restructuring as a significant contributor.

Abu Dhabi Islamic Bank is trading at its highest point since October 2008, at Dh3.46 a share, while Abu Dhabi Commercial Bank is also near a two-year peak at Dh3.28.

First Gulf Bank, the country's second-largest bank by assets, has steadily edged higher since the lows reached at the end of 2008, but last week dipped 1.7 per cent to Dh17.65. Union National Bank, another of the capital's big lenders, ended the week 0.3 per cent higher at Dh3.63.

The Abu Dhabi Securities Exchange (ADX) General Index closed flat at 2,714.77 points on Thursday, but analysts forecast the market will break above this level if the capital's banks report good earnings.

Amjad Baker, the trading manager and technical analyst at Wafa Financial Services in Abu Dhabi, said he expected the ADX to rally if it closed above 2,729 points.

"If we get a strong performance from banks in Abu Dhabi, I'm expecting the market to rise to 2,777 points, or by 50 points or so, if we break this point," he said.

Political and economic developments in Egypt will keep traders focused on Cairo's benchmark index, the EGX 30, which has been subject to volatile trading.

The Egyptian Exchange closed 0.8 per cent higher at 5,360.34 points on Thursday before Friday's demonstrations, when tens of thousands of protesters took to the streets. Market commentators are still wary of what has been regarded as a painfully slow recovery for the North African country's economy.

In a surprise move, Egypt rejected international aid from the IMF and World Bank in favour of packages from its Arab neighbours. Ann Wyman, the head of emerging markets research at Nomura, said the market "seems to be taking the rejection of the IMF funds and increased political noise in its stride" but added that the trial of the former president Hosni Mubarak scheduled for next month could be "another lightning rod" for the fragile economy.

"The lack of transparency around how and when funding may be released from Gulf lenders and donors could also create some uncertainty in the market," Ms Wyman said.

fhalime@thenational.ae