Region's investors brace for rough ride

Market Preview: Markets this week are slated to react to the US downgrade, in addition to second quarter results from Abu Dhabi Islamic Bank, Qatar's Masraf Al Rayan and Barwa Real Estate.

Investors in the Gulf markets are closely watching events in the US and Europe.

Investors in the region face another roller coaster ride this week after the ratings agency Standard & Poor's downgraded US debt and the euro crisis continued.

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Shares have tumbled on Wall Street since the onslaught of the debt crises on both sides of the Atlantic. Stocks in Europe and Asia are also trading below last year's levels.

In the GCC, markets ended last month down, apart from Qatar, which managed to eke out small gains.

"We are hostages to this growing debt crisis," said Mohammed Ali Yasin, the chief investment officer at CAPM Investments in Abu Dhabi. "What is happening in the US and in Europe has shown that there is no market that is 100 per cent safe."

Apart from closely watching events in the US and Europe, investors and traders will be poring over company results from Gulf financial, property and telecommunications sectors this week.

Abu Dhabi Islamic Bank is slated to report its second quarter earnings today.

Banks in the GCC have announced a mixed set of results, with profitability of core banking operations among several lenders increasing above expectations. But low credit growth and loan provisions continue to be a drag on balance sheets.

In Qatar, Masraf Al Rayan bank is expected to report on Tuesday. Shares of the Islamic lender moved up 0.2 per cent to 23.99 Qatari rials last week.

"It is obvious that GCC banks are still worried about corporate defaulting as a continuous effect of the 2008 crisis, therefore, they continue using the high operating profits environment and lowering of expenses to increase their provisions and providing more cover to their NPLs," Mr Yasin said.

"Overall, I would say that most banks' results were above or equal to our expectations."

Last week, Emirates NBD, the largest Gulf bank by assets, reported second-quarter net profits jumped by 87 per cent to Dh745 million on the back of higher income from investment securities compared with the same period last year.

But the lender, based in Dubai, still missed most analysts' forecasts.

It booked Dh981m of impairments during the quarter and cut its loan growth outlook for the remainder of the year.

But non-performing loan ratios in the Emirates are expected to continue to rise for the remainder of this year and into next. Provisioning will remain high, according to Kuwait's NBK Capital.

Elsewhere, Barwa Real Estate is expected to report in Qatar on Thursday. Shares of the property developer, which is 45 per cent owned by Qatar's sovereign wealth fund, jumped 2.6 per cent to 31.1 Qatari rials last week.

Qtel, or Qatar Telecom, will report its earnings on August 14.

Qatar's benchmark, the QE Index, gained 1.3 per cent to 8490.81 points last week.

In the UAE, the Abu Dhabi Securities Exchange General Index rose 1.6 per cent to 2670.79 points, while the Dubai Financial Market General Index gained 1.5 per cent to 1541.15 points.

Elsewhere in the region: Kuwait's index rose 0.5 per cent to 6,066.20 last week; Bahrain's measure ended down 0.8 per cent to 1,281.04; and Oman's index lost 0.8 per cent to 5,758.92. The Saudi Tadawul All-Share Index moved down 5.46 per cent to 6,073.44 yesterday.