Markets up on China growth

The Gulf's industrial titans recorded some of the biggest gains in the region on news that manufacturing in China grew for a third month.

World stock markets rallied as Chinese manufacturing growth helped push oil to its highest since November and Gulf markets braced for a new wave of foreign capital. The Gulf's industrial titans recorded some of the biggest gains in the region on news that manufacturing in China grew for a third month, bolstering hopes that the worst of the global financial crisis is over and stoking demand for commodities from Doha to Riyadh.

Saudi Basic Industries Corporation, the world's largest chemical maker by market value, gained 5.2 per cent while Industries Qatar, the country's largest public company, added 1.5 per cent. The rising price of oil and renewed investor sentiment towards emerging markets also combined to drive Gulf stocks higher, amid fears that the dollar may no longer be a safe haven for those seeking to weather the global financial storm.

"If China, which imports a huge amount of oil from the GCC, increases its demand, that will certainly support fundamentals in the GCC. It wouldn't surprise me if petrochemicals benefited especially," said James Reeve, the senior economist at the Samba Financial Group. The Dubai Financial Market General Index hit a five-month high, finishing 2.2 per cent higher after rising for the fifth consecutive trading session. The Abu Dhabi Securities Exchange General Index advanced 0.2 per cent, the fourth consecutive increase. The Kuwait Stock Exchange Index gained 1.2 per cent and Saudi's Tadawul rose 1.81 per cent. The Doha Securities Market Index climbed 1.4 per cent and the Bahrain All Share Index increased 0.6 per cent. Oman recorded the only decline as shares fell a marginal 0.1 per cent.

"People are bullish on emerging market equities now. Treasuries have lost a bit of their attractiveness in view of what the Fed is up to with its quantitative easing. There is a fear that the Fed is going too far and creating inflation," said Tim Fox, the chief economist at Emirates NBD. Treasuries fell yesterday, reducing demand for the safety of government debt . Ten and 30-year securities led the declines as the MSCI World Index gained 1.57 per cent. China's Shanghai Composite Index advanced 3.4 per cent yesterday and Russia's RTS Index increased 7.34 per cent. Europe's Dow Jones Stoxx 600 Index rose by 2 per cent.

The price of crude oil climbed to its highest yesterday since November, reaching US$68.18 on new evidence that China's economy, and perhaps other emerging markets, may be rebounding from the effects of the global economic slowdown. Yesterday's gain extended crude's 30 per cent rally last month, its biggest monthly increase in a decade. Oil has rebounded from below $33 a barrel in late December, after tumbling from a record $147 last July. The price recovery gave OPEC enough confidence to leave its output target unchanged at its meeting last week.

"The price of oil - which has had huge gains in the past couple of days - has reflected positively on our capital markets. We have seen more buying, more people are taking the chance, putting more liquidity in," said Ayman el Saheb, the director of operations at Darahem Financial Brokerage. The Purchasing Managers Index in China remained in expansionary territory for the third straight month, raising hopes that the massive government fiscal stimulus is succeeding in boosting Chinese economic growth and with it global demand for commodities, such as oil.

"There is more risk appetite now. I think the emerging markets - particularly the ones who can benefit from the commodity boom - are seen as the areas where growth can evolve more quickly, partly because they were a little more sheltered from the global market storm," said Mr Fox. The MSCI Emerging Market Index climbed 2.7 per cent yesterday in London to the highest level in eight months, according to Bloomberg. The index has jumped 55 per cent during the the past three months, the steepest rise since its creation in 1987. During the same period, the MSCI's developed market stock index rose only 29 per cent.

Analysts say the Dubai stock market could still outperform other emerging markets this year, as it was harder hit than than other emerging markets last year, and has not rebounded as much as comparable markets during the past few months. "Most of the GCC markets are fairly placed with the UAE yet to catch up in the rally act, and therefore offering potential going forward," said MR Raghu, the head of research at the Kuwaiti investment firm Markaz.

Mr el Saheb cautioned that although the recent rally has been a boon, local traders should remain wary of gains caused by an influx of international money. "It is important for us to know who exactly is driving this buying spree. Historically, foreign institutions used to come in fully loaded, then take the market up very fast but they exit just as fast," he said. [e-mail]