DUBAI/CAIRO: Gulf markets are feeling shockwaves from the intensifying debt crisis in euro zone and are likely to face selling pressure, although investors are being drawn to opportunities in smaller markets.
"We are in the middle of summer and if we don’t have a catalyst and strong news flow to bring local investors back to the market, we will have a downtrend and that is the play right now," said Sebastien Henin, portfolio manager at The National Investor.
"On top of that you have an international mood, which is not very good. We have a situation in Europe and USA."
Kuwait is seen volatile on renewed concerns over the country’s economic outlook while implementation of new regulations by the Capital Markets Authority weighs on investor sentiment.
A set of new rules were announced in March with a 2011 deadline, when investment firms were told to obtain separate licenses for lending and investment business, while funds will no longer be allowed to invest more than 10 percent of total assets in one security.
The latter’s deadline was extended this week till March 2012, which helped the index recover slightly from a seven-year low the previous day.
Saudi Arabia’s market is seen higher in coming sessions on the back of second-quarter earnings that were largely above-expectations or line with them.
"The petrochemicals sector reported very solid earnings and cement companies showed growth in Q2, which is a positive indicator for the economy," said Youssef Kassantini, a Saudi-based financial analyst. "The banking sector is also recuperating."
With the three sectors accounting for a near 70 percent weight on the index, he said the market has only one direction to move – up.
Investors are looking beyond the popular stocks to find opportunities. Valuations in Amman are seen attractive as fundamentals in the banking and fertilizer sectors are strong, TNI’s Henin said.
"The problem is the country [Jordan] is very small and driven by local sentiment, which is not good. [Unless] if you look at the fundamentals. I wouldn’t be surprised to see foreign funds coming in the next few months," Henin said.
Political events will continue to drive the Egyptian stock market, which has been on a roller coaster ride over the last two weeks driven by popular protests, but company news should start to drive trade shares as second-quarter earnings seasons kicks off.
An upsurge in protests in Tahrir Square pushed the benchmark index to its lowest point in two months on July 12.
The market rebounded when the government subsequently announced a series of reforms, including a cabinet reshuffle, a pledge of more transparency in the trials of former officials and the forced resignations of Interior Ministry officials accused of involvement in the killing protesters.
But the index retreated early this week as political uncertainty once again weighed, compounded by news that the prime minister was briefly hospitalized on Monday with blood pressure problems, delaying the swearing-in of the new cabinet.
"Politics remains the central theme in Egypt as we approach Ramadan, with Tahrir Square once again the venting-ground for simmering popular frustration," CI Capital said in a note this week. "The still-opaque political situation, both in Egypt and regionally, does little for investor confidence."
Egyptian mobile phone company Mobinil kicks off earnings with its results next Tuesday.
The central bank is expected to leave key interest rates unchanged when its Monetary Policy Committee meets on Thursday, all eight economist polled by Reuters this week said.
"Equities will likely continue to be on a roll coaster in the short term in response to two dominant themes, namely the cross-Atlantic sovereign debt crisis and the political deadlock in Egypt," said Hany Genena at Pharos Holding.
"Thin trading and short-term positions will be the norm over the coming few weeks and investors will be particularly watching Tahrir Square demonstrations with anxiety," Hany added.