Bloomberg News

Mideast Markets Shrug Off Violence as Shares Gain, Yields Fall

September 16, 2012

Middle East markets disregarded violent protests, with Egypt’s benchmark index climbing to the highest since January 2011, after the U.S. Federal Reserve announced new stimulus measures.

The EGX 30 Index (EGX30) rose 2.8 percent yesterday to 5,821.75, the highest since Jan. 26, 2011, the second day of the revolt that ended President Hosni Mubarak’s three-decade rule. The world’s best-performing gauge is up 61 percent this year, outperforming 91 global indexes tracked by Bloomberg. Dubai’s measure (DFMGI) rose 1.4 percent, while Saudi Arabia’s index gained 0.7 percent in the past two trading days. Egypt’s nine-month treasury-bill yield fell to a 10-month low.

Hundreds were hurt during clashes between protesters and authorities in Egypt, Tunisia and Sudan against a film denigrating Islam, before protests died down over the weekend. Clashes in Cairo’s Tahrir Square stopped Sept. 15 after Egypt’s main Islamist groups called for calm. Libya arrested about 50 people in connection with the attack on the U.S. consulate in Benghazi that left the U.S. ambassador and three others dead.

“Incidents like these have happened in the past, even before the Arab Spring, and they are reactions rather than structured and ongoing violence,” said Fadi Al Said, a Dubai- based senior investment manager at ING Investment Management. “Market and investor sentiment doesn’t want anything to spoil the honeymoon” after the Fed’s decision to implement a third round of asset purchases.

Credit Risk Drops

The Fed said Sept. 13 it would embark on open-ended purchases of $40 billion of mortgage debt a month as it seeks to boost growth and reduce unemployment. The move helped boost the MSCI World Index 2.7 percent last week.

Stock markets in Qatar, Oman and Bahrain also advanced yesterday, while the yield on Dubai’s benchmark 5.591 percent bonds maturing in June 2021 fell to 4.52 percent on Sept. 14, near a record low.

Egypt’s five-year credit default swaps have tumbled 85 basis points this month to a one-year low of 400 at the end of last week, according data provider CMA. Tunisia’s contracts dropped 11 basis points that day to 303, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The yield on Egypt’s nine-month treasury bills plunged 102 basis points, or 1.02 percentage points, at yesterday’s sale.

Aid Pledges

The U.S. embassy in Cairo has resumed operations and Egypt’s Finance Ministry said the North African country will receive a $2 billion aid package from Turkey.

Turkey’s pledge comes after Qatar, the world’s biggest exporter of liquefied natural gas, said it would deposit $2 billion with Egypt’s central bank and invest another $18 billion in projects. Egypt, which hosted a delegation of U.S. businesses last week, is due to resume talks with the International Monetary Fund this month for a loan of as much as $4.8 billion as the country aims to double economic growth this fiscal year to more than 4 percent.

The EGX 30’s relative strength index surged to 82 yesterday after surpassing 70 last month. A reading above 70 indicates to some investors that a security is poised to decline.

“The market is more or less immune from protests now, in addition to the fact that there’s a lot of cash on the sidelines waiting to be deployed on any weakness, so that’s keeping a bid under the market,” said Wafik Dawood, director of institutional sales at Cairo-based Mega Investments Securities.

Fed Focus

In Dubai, Emaar Properties PJSC (EMAAR) climbed 3.2 percent after the developer of the world’s tallest tower said it will build a hotel near the Burj Khalifa to capitalize on the city’s hospitality boom. EFG-Hermes Holding SAE (HRHO), the biggest publicly traded Arab investment bank, rallied 3.5 percent to a four-month high after shareholders approved the creation of an investment bank with Qatar’s QInvest.

Saudi Basic Industries Corp. (SABIC), the world’s biggest petrochemicals maker by market value, rallied 3.9 percent last week and gained another 2.2 percent in the past two trading days after oil advanced 2.7 percent in New York last week.

“Middle East and North Africa markets are shrugging off any concerns relating to disparate Islamic protests and focusing instead” on the Fed’s stimulus plan, said Julian Bruce, the Dubai-based director of institutional sales trading at EFG- Hermes.

To contact the reporters on this story: Ahmed A. Namatalla in Cairo at anamatalla@bloomberg.net; Zahra Hankir in Dubai at zhankir@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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