Exceeding expectations?

Byline: [e-mail] (Staff Writer)

Better than expected banking sector results in the UAE, Saudi Arabia and Qatar provided a boost for the markets, according to Rasmala. Core banking operating revenues exceeded investor expectations despite the booking of higher loan loss provisions.

"These results indicate that there is potential for improved bank earnings for the second half of 2009. The UAE was the best performing market this month while Egypt continues to be the best performing Arab market so far this year," it said.

Globally, the S&P 500 gained 7.4 per cent in July as corporate results also surpassed expectations. This is the fifth consecutive monthly gain by the S&P 500. Approximately 75 per cent of the 148 companies in the S&P 500 that released second-quarter results exceeded investor estimates. However, overall the companies in the S&P 500 can still expect a record eighth consecutive decline in quarterly profits. At the end of July, oil prices increased by 2.4 per cent to reach $70 per barrel.

In Saudi Arabia, several banks increased their loan loss provisions in Q2 2009 amid concerns over the solvency levels of two heavily indebted Saudi conglomerates. Among the top gainers this month is Savola, which gained 14.2 per cent as it acquired the Geant supermarket chain for $440 million. This will enable Savola's retail arm Azizia Panda to increase its turnover by approximately 13 per cent.

"We maintain our positive stance on Saudi equities," said Rasmala. "The solid domestic macroeconomic environment supports the defensive profile of several Saudi equities relative to GCC. "

The MSCI UAE Index gained 10.1 per cent driven by Abu Dhabi based banks which reported stronger than expected results despite a higher allocation of loan provisions. S&P lowered its credit ratings to three Dubai based banks - Emirates National Bank of Dubai, Mashreq Bank and Dubai Islamic Bank, because of the sharp correction in the real estate market increasing risks for Dubai's economy and presenting additional challenges for the banks.

UAE Q2 2009 results were impacted by above average loan provisions and a once off write down by Emaar Properties. This, Rsamala added, provides an opportunity for a potential earnings recovery in the second half of 2009.

Kuwait was the second worst performing market in July as it fell by five per cent owing mainly to the banking sector, with Fitch reporting that Kuwaiti banks had come under increasing stress. Earnings announcements failed to lift investor sentiments in Kuwait during July, and concern continues regarding the financial sector in the country due to its significant exposure to investment companies and the real estate sector.

Qatar, which is expected to report a real GDP growth of at least seven per cent in 2009, is set to increase its annual gas production capacity from 39 million tonnes to 60 million tonnes by the end of this year. Positive results by the banking stocks contributed to index gains of 3.3 per cent in July and investors are waiting for key earnings announcements by Qatar Telecom and Industries Qatar to reaffirm their positive view on the market in the short term.

The Omani market gained 4.2 per cent in July with Bank Muscat and Omantel leading the gains with 6.5 per cent and 6.2 per cent respectively. Bank Muscat Q2 2009 net income fell by 62 per cent to OMR 12 million. The Omani Central Bank said in its latest report that real GDP growth is likely to remain positive in 2009 due to sustained domestic demand and continued capital expenditure. Valuations in the Omani market remain reasonable versus their regional peers and we expect the market to continue its gradual recovery over the medium term.

The Egyptian market gained 8.3 per cent in July led by the telecommunications sector. Orascom Telecom, Telecom Egypt and Mobinil gained 21.4 per cent, 9.3 per cent, and 7.6 per cent respectively. The ongoing dispute between France Telecom and Orascom Telecom over Mobinil's ownership did not prevent the telecom stocks recording strong gains in July. Inflation slowed to 9.9 per cent in June from 10.2 per cent in the previous month, this in turn induced the Central Bank to cut interest rates by 50 bps to 8.5 per cent for deposits and 10 per cent for lending.

2009 CPI Financial. All rights reserved.

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