Abu Dhabi: The regional stock markets may rebound at the beginning of the week in line with the prevailing global market trends, but there will be high volatility, market analysts told Gulf News Saturday.
However, banking stocks will have to outperform other sectors if the shares are to rally near term, they added.
"Fundamentally, there are problems in the banking sector. Their loan to deposit ratios aren't good enough and this is slowing down economic activity," said Ahmad Hamdy, a market analyst.
He said technically, the regional markets, including the markets in Dubai and Abu Dhabi, still have 10 per cent to 12 per cent downside potential.
"The trading volume on both markets continues to be low. The outlook for the real estate sector in the UAE is still not positive. Banks have to start lending again in a big way for the trading volumes to pick up," said Hamdy, adding that by the end of 2010, the picture will become clearer.
"There is likely to be a status quo with regard to regional stock markets in the week ahead with global cues determining their direction," said Vikram Shetty, Fund Administrator with the National Bank of Abu Dhabi Asset Management.
Market analysts also say the strength of the euro and the direction of oil prices will be factors that will determine the course of the regional markets.
Last week, European stocks rose for a third week as the Federal Reserve said it would act as needed to support the recovery, and economic reports and a successful government bond sale in Spain boosted investor confidence.
The Stoxx Europe 600 Index rose 2 per cent to 249.46, extending the previous week's 0.2 per cent increase. The measure has still fallen 8.3 per cent from this year's high on April 15 as investors speculated that efforts to contain Europe's debt crisis will choke off the economic recovery.
US gains
US stocks advanced last week, sending the Standard & Poor's 500 Index to the biggest weekly gain since March, after National Semiconductor Corp. spurred a rally in technology shares that helped the market overcome the largest drop in American retail sales since September.
Within the region, Saudi Arabian shares advanced to the highest level in more than a week led by petrochemical companies as oil rose for a second day and on speculation the past month's drop may have been overdone.
In Dubai, the Dubai Fin-ancial Market index rose marginally to 1,514.23 on Thursday, while the Abu Dhabi stock market general index fell fractionally to 2,519.92. The Kuwait Stock Exchange index retreated 0.8 per cent to 6,669.1. Oman's gauge rose 0.2 per cent, Qatar's QE index lost 0.3 per cent and Bahrain's gauge slid 0.2 per cent.
