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.
Globally, the S&P 500 gained 7.4% in July as corporate results also surpassed expectations. This is the fifth consecutive monthly gain by the S&P 500. Approximately 75% 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% to reach $70.0 per barrel.
In Saudi Arabia, several banks increased their loan loss provisions in Q2 09 amid concerns over the solvency levels of two heavily indebted Saudi conglomerates. Among the top gainers this month is Savola, which gained 14.2% as it acquired the Geant supermarket chain for $440m. This will enable Savola’s retail arm Azizia Panda to increase its turnover by approximately 13%.
We maintain our positive stance on Saudi equities. The solid domestic macroeconomic environment supports the defensive profile of several Saudi equities relative to GCC.
The MSCI UAE Index gained 10.1% 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 09 results were impacted by above average loan provisions and a once off write down by Emaar Properties. This 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 5.0% 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 7% in 2009, is set to increase its annual gas production capacity from 39m tonnes to 60m tonnes by the end of this year. Positive results by the banking stocks contributed to index gains of 3.3% 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% in July with Bank Muscat and Omantel leading the gains with 6.5% and 6.2% respectively. Bank Muscat Q2 09 net income fell by 62% to OR12m. 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% in July led by the telecommunications sector. Orascom Telecom, Telecom Egypt and Mobinil gained 21.4%, 9.3%, and 7.6% 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% in June from 10.2% in the previous month, this in turn induced the Central Bank to cut interest rates by 50 bps to 8.5% for deposits and 10% for lending.
Sunday, August 9- 2009 @ 12:39 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.