MENA equity continue recovery as broad regional index gains 12.4% in May

Qatar was the best-performing market in the region this month, while Egypt overtook Saudi Arabia as the best-performing Arab market in 2009. Higher oil prices, improved investor sentiment and positive corporate announcements were the main drivers of the positive performance across the markets.

Globally, the past month started off with gains in US equity markets, boosted by better-than-expected unemployment figures and banks' stress test results. The rally was put on hold in the third week of the month as the market witnessed selling pressure on concerns about General Motors filing for bankruptcy, the downgrading of the UK's credit rating outlook by Standard & Poor's, as well as the contraction of the US economy at a 5.7% annual pace in the first quarter of 2009.

Emerging markets, measured by the MSCI EM Index, continued to outperform, bringing their total gains this year so far to 36% and reaching an eight-month high towards the end of May.
The UAE equity market continued its recovery and gained a further 11% over the month amidst increased foreign investor interest in the market. Real-estate stocks were the main gainers this month, led by Emaar, which gained 48%.

Arabtec, Sorouh and Aldar gained 37%, 24% and 28%, respectively. SHUAA Capital, a UAE-based investment bank, gained 70% on speculation that the company will strike a deal with Dubai Banking Group regarding its convertible bonds. On the other hand, index heavyweights Etisalat and Taqa witnessed zero appreciation in their share price for the month.

The UAE market is trading at a discount relative to its GCC peers and we see room for further market appreciation on the back of improved investor sentiment and increasing foreign fund flows into the market.

Saudi Arabia, the largest MENA equity market ended the month with a gain of 4.8%, taking its 2009 gains to 22.7%. Unlike the previous month where gains were reported across all sectors, the performance among different sectors this month was mixed. Banks and insurance stocks retreated, while petrochemical and telecom stocks gained. Petrochemical stocks, on the other hand, advanced on the back of surging oil prices, which hit a seven-month high. SABIC, which constitutes 11% of the Tadawul Index, gained 37% this month.

The Kuwaiti market gained 7.9% in May, bringing total 2009 gains to 4.7%. Agility, the Middle East's largest logistics company, gained 33% this month after the company renewed a contract worth $1.4bn with the US army. Zain gained 28% in May and has been invited to bid for Iran's third mobile license after the regulator cancelled an agreement with UAE-based Etisalat.

Despite reporting a first-quarter loss of KD69.5m, Global Investment House's share price surged by 55% over the month. On the macro front, the Kuwait Central Bank reduced its benchmark rate by half a percentage point to 3%. Falling inflation and a slowdown in credit growth prompted the bank to cut rates in an effort to boost economic growth.

Qatar equities surged this month by 24.6%, driven by higher oil prices and the government's offer to buy local banks' real estate investments. Industries Qatar, the largest listed company in Qatar in terms of market capitalization, gained 35% on the back of surging petrochemical and fertilizer prices. The Qatari banks index gained 8% on the day the government announced it will buy local banks' real estate investments worth as much as QR15bn.

Qatar National Bank, Qatar Islamic Bank and Commercial Bank of Qatar gained 16%, 24% and 28%, respectively, over the month.

Oman equities advanced 7.2% in May, bringing their 2009 gains to 1.1%. The positive market performance was largely driven by Bank Muscat which gained 7.5% during the month. Oman Telecommunications Company gained 2.3% during the month. On the macro level, inflation fell to 4.9% in April, compared with 6.2 % in March, and the economy has grown by 2% in real terms so far this year. Higher oil production by non-OPEC oil exporter, along with rising oil prices, are expected to help narrow the country's expected budget deficit in 2009.

Egypt, the largest market outside the GCC enjoyed a positive month, benefiting from positive corporate results as well as improved global sentiment. The market gained 13.6% in May, taking its 2009 gains to 28.9% and overtaking Saudi Arabia as the best-performing Arab market in the year to date. High liquidity levels were maintained and were led by retail investors, who accounted for around 70% of total market transactions.

Telecom Egypt and Commercial International Bank boosted their companies' stock performance, gaining 16% and 17%, respectively. Orascom Construction Industries and Egyptian Kuwaiti Holding Co. both saw their share price appreciate by 29% and 16%, respectively, on the back of higher fertilizer and oil prices.

On the other hand, the death sentence given to Hesham Talaat Moustafa, former TMG Holding chief executive, as well as France Telecom's bid to acquire 100% of Mobinil shares, resulted in an increased level of volatility on the Egyptian stock market during May.

TMG Holding fell by more than 14% on the day the company's former CEO was sentenced to death for the murder of a Lebanese singer, dragging the EGX 30 down by 4% on that day. The unresolved dispute between Orascom Telecom and France Telecom over Mobinil's ownership is expected to add more volatility to the market.