Broad MENA market equity index registers a gain of 7.5% after 10 straight months of losses

The regional markets recovered some of their poise after a horrific 12 months as a combination of global and regional factors led to some optimism that the worst of the global financial crisis may be behind us and a period of recovery, albeit it a slow one, may be in front.

Going forward, close attention will be paid to the release of first-quarter 2009 earnings after a disastrous fourth quarter of 2008 led to combined losses of $5.7bn in GCC-listed companies, compared with profits of $13bn over the same period in 2007.

The UAE markets followed up February's gains with another gain of close to 7% in March, which has taken them to a small positive gain for the year. Investor's attention was very much focused on credit and interbank markets as official bodies in Dubai and Abu Dhabi announced several important initiatives to unlock the liquidity squeeze that is affecting the economy and investor confidence.

Good gains were seen in real estate and construction stocks. The banking sector was mixed, with large caps National Bank of Abu Dhabi and Emirates NBD ending March slightly lower while National Bank of Abu Dhabi, First Gulf Bank and Dubai Islamic Bank posted good gains.

Recent signs of local investors returning to the market will be critical in reviving the markets as the interest of foreign investors will be primarily focused on their own markets and more established emerging markets.

Saudi Arabia, the largest MENA market posted gains of 7.28% during March, reducing year-to-date losses to around 2%.

The market started off on a very weak footing taking the market to close to the 4000 level before a strong rally in the second half of the month ensured a positive finish to March. Banking sector profits for the first two months of 2009 were SR6bn ($1.6bn) compared with SR5.2bn ($1.39bn).

In Kuwait, despite continued legislative gridlock, the equity market was able to make gains of close to 5% in March, reducing losses so far in 2009 to around 13%. Earnings news for 2008 continues to make grim reading, and amidst stricter disclosure rules, 39 companies who haven't submitted their 2008 results will be suspended from trading.

The banking sector was driven by large cap stocks such as National Bank of Kuwait, Kuwait Finance House and Zain (a telecoms company), which gained between 10% and 15%.Investor's attention remains focused on the investment sector and the progress of government plans in preventing defaults and bankruptcies which would have a ripple effect throughout the banking sector and the economy overall.

Qatari equities also rebounded from a very poor start to the year to gain 10% in March. Year-to-date, the market is still down close to 30%, making it the worst performing regional market over the first three months of 2009. Sentiment was boosted by a rally in oil prices and continuing government measures aimed at reinvigorating banking sector activity by recapitalizing banks and purchasing their investment portfolios.

Oman, the smallest GCC market, was weak over the month and failed to benefit from the improved global and regional sentiment. Losses of around 5% over the month have taken 2009 losses to close to 15%, making it the second worst performing regional equity market for 2009.

The market is plagued by low liquidity and little investor interest and the government-sponsored Oman Stabilisation Fund has failed to spark a sustainable turnaround in market sentiment.

Valuations of the Omani market are in line with regional peers, but low levels of liquidity and a lack of sustained buying interest, despite government intervention through the Oman Stabilization Fund, is holding back any recovery. Further catalysts in the shape of positive earnings surprises or regional and foreign investor flows are needed to spark a revival in the market.

Egypt, the largest regional market outside the GCC enjoyed a very strong month and was the best performing market in the region with a gain of close to 17%, reducing its 2009 loss to under 9%.

In Egypt, the catalyst for the revival was the much improved sentiment in global markets in general, and emerging markets specifically, with local investors joining foreign investors in buying up shares which had reached very attractive valuations after the huge losses of the past 12 months.

Equally importantly, investors were encouraged by further reductions in interest rates by the Central Bank of Egypt to revive investment expenditure and consumption. In the near term, the fortunes of the Egyptian market will depend to a large extent on the success of the Central Bank of Egypt in reducing interest rates to a level that will encourage investors and consumers while controlling the increasing fiscal deficit.