Middle East market report- August 2006 - Rasmala Investment (page 1 of 2)

The ceasefire announced on August 14th was very well received by these markets however and Arab equity markets ended the month with positive returns.

The largest market, Saudi Arabia, was up 2.4% during the month of August. This rally comes on the back of the large losses of July as the improving situation in Lebanon and the pick up in volumes brought investors back to the market. This market remains very much a speculators market as price and trading volume gains were led by speculative agricultural stocks. Liquidity remains very abundant as evidenced by the close to 14% growth in bank deposits at the end of the second quarter of this year compared to the same period last year and persistently high oil prices and the pause in interest rate increases in the U.S will ensure that this will remain the case for the foreseeable future. The IPO schedule continues to be heavy and most IPO's continue to be over-subscribed as market participants see quicker profit making opportunities in the primary market. Emaar Economic City's IPO was oversubscribed by 2.8 times, as 10 million Saudis subscribed for SAR 7.18 billion worth of shares. In addition, Saudi International Petrochemical Company (Sipchem) will float 30 percent of its 150 million shares as part of the Initial Public Offering on Sept. 9 and a Saudi Riyal 10 billion IPO for Saudi Development Bank is expected in November. The appetite for IPO's will continue and most of the new issues are expected to be oversubscribed which will continue to exert pressure on the secondary market. The Saudi Capital Market Authority has been taking quiet steps to introduce further transparency to the market with regards to corporate governance and disclosures and this has gone some way in adding some stability to the market which remains very speculator driven.

The Egyptian market continues to make good progress and build on its spectacular performance in July. Market leader EFG-Hermes reported a whopping 252% increase in profits for the first half of 2006 compared to the same period in 2005 while Orascom Construction reported a 53% increase in profits during the first half of the year. The fundamentals for the Egyptian economy remain positive as revenues from oil exports, workers remittances and increased volumes of traffic through the Suez Canal continue to support the country's balance of payments and foreign current reserves. Egypt announced plans to boost industrial investments to 230 billion Egyptian pounds ($39.76 billion) from EGP16 billion and has set up a strategic plan until 2025 to increase industrial growth to 9% from 5% further underlining the growth potential of the Egyptian economy. At approximately 15 times earnings, the market is not overly expensive and further gains can be expected.

Positive news coming from some UAE companies and the calming down of the situation in Lebanon led to a very strong improvement in prices and trading volumes on the two U.A.E exchanges. Trading volumes and gains were very much concentrated in market leader Emaar which represented some 70% of total trading volumes on some days. This greater investor interest and an attractive price is likely to drive it's price higher in the coming months as investor sentiment improves. The Abu Dhabi market lagged the Dubai market in terms of trading volumes and price appreciation as investors favoured stocks such as Emmar and Amlak over Abu Dhabi listed stocks. The cement sector also performed well as news of the ceasefire in Lebanon lead to cement companies such as Gulf Cement, Union Cement and National Cement showing gains for the month as investors are anticipating a rising demand for the commodity when the rebuilding of the war-torn country begins.