By Nadia Saleem and by Tom Pfeiffer / Reuters
DUBAI: Egypt’s stock market is likely to drift in coming days while investors await the outcome of protests planned for Friday against the disqualification of three leading candidates for the presidency.
If the protests turn violent that could trigger a sharp drop in the stock market. If they pass peacefully they could even lift the market slightly, analysts said, but trading volumes are likely to remain low while uncertainty about who will form the next government remains.
The benchmark EGX 30 index ended Wednesday down 0.14 percent at 4,672.55 points.
The removal of ousted president Hosni Mubarak’s intelligence chief Omar Suleiman, the Muslim Brotherhood’s nominee and a Salafi sheikh from the election race has altered the political landscape weeks before next month’s vote.
For some, the removal of three divisive figures from the competition has boosted the likelihood of a peaceful transition to democratic rule. But it has also raised the immediate risk of an angry reaction from their supporters.
“There are other candidates who can always fill their shoes. And everyone is worried about what happens with the protests this Friday,” said Omar Darwish of CIBC brokerage.
Egypt’s benchmark index soared 51 percent at the start of the year, making it the world’s best-performing market, but is now down 15 percent against a backdrop of growing confrontation between the Brotherhood, which dominates parliament, and the country’s military rulers.
“People are still stepping aside from the market and yesterday saw the kind of volumes you’d usually expect on a Sunday,” said Darwish. “We think we already saw the bottom on most stocks, but … we’ll probably stay here until the picture improves.”
Saudi rebound ongoing
Saudi Arabia’s stock market rebound looks poised to continue next week as a spate of encouraging corporate earnings reports has boosted sentiment and valuations look attractive after the market’s recent sharp correction.
Forecast-beating earnings from chemicals giant Saudi Basic Industries (SABIC) helped push the blue chip index off a seven-week trough on Tuesday, halting a correction that had seen stocks plummet 8 percent in the last two weeks, cutting into a 31 percent rally over the previous four months.
Analysts now expect blue chips, which have underperformed small caps this year, will lead shares higher.
SABIC said first-quarter net profit fell 5 percent to 7.27 billion riyals ($1.94 billion) from a year earlier on higher input prices, but it easily beat a Reuters estimate of a profit of 6.7 billion riyals.
Most banks have posted growth for the quarter. Al Rajhi Bank, SABB and Banque Saudi Fransi posted net profit growth of between 10 and 18 percent year-on-year, largely in line with estimates.
“We are now reasonably positioned for slower and steady gains,” said Paul Gamble, chief economist and head of research at Saudi-based Jadwa Investment. “Banks is one of the sectors to look at, as well as the petrochemical sector, where valuations are good.”
The kingdom’s blue chips, including petrochemical and banking stocks, have been overshadowed this year by small-caps such as telecoms operator Zain Saudi and developers Dar Al Arkan and Emaar Economic City. Shares of those three companies have rallied by between 60 and 72 percent year-to-date thanks to buying by local retail investors.
In contrast, SABIC is up 6.3 percent this year and Saudi Arabian Fertilizers has risen 3.7 percent, while Riyad Bank has gained 7.9 percent, and Al Rajhi Bank has jumped 12.6 percent. They have significantly underperformed a 17 percent rise in the benchmark index.
Blue chips’ more subdued performance has caused some Saudi-focused portfolios to also underperform the market.
“The quality of the Saudi market’s rally was extremely poor and makes us nervous,” said Shakeel Sarwar, head of asset management at Securities & Investment Co (SICO) in Bahrain.
“Out of the top 70 outperformers, there are hardly six to seven companies which could be classified as investment grade,” he said.
The global economic environment remains uncertain, weighing on risk appetite, and the Saudi market will still be vulnerable to another correction if fresh data hints at a global slowdown or if the euro zone debt crisis escalates sharply.
“Global markets are more nervous at the moment, so anything that would set them back is something to be wary of. As long as the problems in Europe are contained, we should see modest gains,” said Gamble.