Europe the focus for Gulf investors

Markets Preview: Regional investors will be eyeing cues from Europe this week as officials from the world's two biggest central banks meet in Frankfurt as a gloomy economic outlook dampens investor sentiment.

Trading in the countries listed companies is expected to remain slow as the Holy Month progresses. Christopher Pike / The National

Regional investors will be eyeing cues from Europe this week as officials from the world's two biggest central banks, the US Federal Reserve and the European Central Bank, meet in Frankfurt.

It was between July 27 and the end of September last year that global markets wiped almost 20 per cent off their value. In the United States, battles in Washington heightened over the US debt ceiling, followed by a sovereign ratings downgrade. Andin Europe, signs of a worsening debt crisis were already in motion, threatening to put the brakes on the global economy.

"The global economy is still fragile and US data doesn't look quite as healthy, the drop in housing sales last week, down 1.4 per cent, does not give comfort for analysts to give a full optimistic view for the remaining of the year," said Wadah Al Taha, the chief investment officer at Al Zarooni Group, an investment company based in Dubai.

"In Europe, the problems are compounded, they are not related to a single currency, country or one aspect of the financial sector, which needs an integrated group of solutions for all members.

"Politics is still playing a big part of the problem and the disagreement on certain aspects is slowing down the recovery of the European financial crisis."

The European Central Bank chief Mario Draghi, who last week said the banking regulator would do everything in its power to save the euro, saw his comments boost world markets. But that was only because they were twinned with his assertion that some stabilisation and reversal of now wildly divergent government borrowing rates within the bloc was central to the institution's mandate.

Mr Draghi's ability to quickly back his words with action that cuts those extreme bond yield spreads and at least neutralises the corrosive effect on global economic confidence of the lingering euro threat is easily the biggest make-or-break issue for investors for the next seven days.

The Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM) saw muted trading activity last week as jittery investors were unwilling to take any further risk ahead of Mr Draghi's meeting.

That was even as second-quarter earnings results from the banking and financial services sector came out better than expected.

The ADX General Index added 0.09 per cent to 2,470.23 for the week, while the DFM General Index declined 1.6 per cent to 1,509.81.

"What we have seen so far is a very muted reaction on the banks despite good results," said Haissam Arabi, the chief executive at Gulfmena Investments in Dubai.

"We are in Ramadan season, there is low interest, low volumes, a lack of conviction and direction for these markets. We might see a repeat of it this week, unless there is a disaster in Europe, in which case stocks will go down."

On Tuesday, Union National Bank and Dubai Islamic Bank will report their second-quarter results. Tabreed, a district cooling company, is also expected to report quarterly earnings on Tuesday.

Last week, Abu Dhabi Commercial Bank, the country's third-biggest lender posted a quarterly profit of Dh733.1 million, exceeding analyst estimates, although the figure was down 45 per cent year on year because of a one-off gain booked in the second quarter last year from the sale of a 25 per cent stake in Malaysia's RHB Capital.

Analysts polled by Reuters had forecast an average profit of Dh679.5m.

Abu Dhabi's First Gulf Bank reported a profit of Dh1.01 billion in the quarter, compared to Dh890.1m a year earlier. Analyst consensus had estimated an average profit of Dh950.1m.

National Bank of Abu Dhabi, the country's second-biggest bank, reported a profit of Dh1.05bn versus Dh1.03bn a year ago.

Analysts had forecast an average profit of Dh1.031bn in a Reuters poll.

* with Reuters