Gulf markets suffer negative returns despite company profits

Dubai: Despite strong first-half corporate profits, Gulf markets reported negative returns during the whole of July and the first week of August.

"The Abu Dhabi Index (ADX) was the only market to post positive returns while the Saudi market plunged to new lows for the year. The previously resilient Omani and Kuwaiti markets could not resist the weak sentiment and lost five per cent and three per cent respectively," said Khalid Al Masri, partner at Rasmala - a regional investment bank, in a report.

These losses meant that global equity markets outperformed those in the Middle East and North Africa (Mena) region during July. Within the Mena region, seasonally low trading volumes, concerns about the Iran nuclear issue, a busy initial public offering (IPO) schedule in Saudi Arabia and the UAE and profit-taking in Kuwait and Oman overshadowed the valuations and positive corporate news.

In Saudi Arabia, the Tadawul index lost 6.5 per cent in July and took down the valuations of this market to under 16 times estimated 2008 earnings, which according to Rasmala is extremely attractive vis a vis historical levels and global and regional peers.

The Dubai Financial Market started the month on a strong note, surpassing 5,500 points as investors accumulated positions ahead of positive second quarter results expectations. However, the market failed to sustain its uptrend and was undermined by selling pressure on its heavyweights amidst signs that foreigners were exiting the market in addition to a strong resistance above the 5,500 level.

In the first week of Aug-ust foreign investors remained net sellers on the DFM. While they bought Dh1.91 billion worth shares they sold Dh2.321 billion. The Abu Dhabi market continues to outperform its Dubai peer and was the only market regionally to end the month in positive territory.

A price-earnings (P/E) ratio of 13 times forecast earnings makes the UAE market one of the most attractive in the region.

"It seems to be only a matter of time before there is a sharp move higher from these levels," said Masri.

Markets: Funds take a beating

Mutual funds registered for sale in the Gulf Cooperation Council fell 7.3 per cent for the first half of 2008, according to various fund trackers that monitor the performance of funds.

Equity funds were the biggest losers in the first six months, posting a minus 12.8 per cent return, followed by mixed-asset funds, tumbling 7.7 per cent. Bond funds were down 2.2 per cent in the second quarter after recording a 2.58 per cent return in the first quarter.

Money market and real estate funds posted positive performances, gaining 2.7 per cent and 3.5 per cent respectively for the first half of the year, according to Lipper, that tracks funds' performance across the world