Traders move into brighter quarters

Traders are optimistic that the second quarter of 2011 will be slightly less tumultuous than the first.

The Dubai Financial Market saw a jump in volumes on Thursday.

Gulf stock markets are entering the second quarter of the year with new optimism as the turbulent events of this year's first three months recede from view.

After uprisings in Tunisia and Egypt, the turmoil in Libya and a string of disasters in Japan, some traders and economists said things would improve in the months ahead.

"Global sentiment is picking up and the global backdrop is supportive of regional markets," said Rami Sidani, the head of Mena investments for Schroders. "International investors are putting money to work that has been sitting on the sidelines."

The political turmoil of the Mena region is starting to take a back seat, Mr Sidani said, adding local markets such as Dubai, which rose 10.3 per cent last month, were returning to the fore.

"Investors are starting to put political developments to the back of their minds and focusing on the reforms and similar projects that are taking place [in the region]," he said.

Traded volumes on Thursday in Dubai were about Dh100 million higher than the 50-day average, which would buoy stocks if the momentum could be maintained, traders said.

Sven Richter, the head of frontier markets at Renaissance Asset Management in London, said the sheer amount of bad news was having the reverse effect, encouraging investors towards more risk-taking.

"There's so much news coming through that [markets] are going back to normal and that's what will drive the market," Mr Richter said.

"As people accept the higher levels of risk and realise that risk doesn't affect everything … and factor it into their calculations, they realise there's no need to throw the baby out with the bath water."

A move this year away from emerging markets back towards developed markets had also eased, and markets such as those in the UAEwere starting to see benefits, Mr Richter said.

News from the US also gave cheer to investors over the weekend, as further evidence emerged that the world's biggest economy was getting on a firmer footing.

The country's non-farm payrolls report, which measures employment excluding the seasonally driven agriculture sector, showed the US added 216,000 jobs last month.

This brought the unemployment rate down to 8.8 per cent. The measure has fallen a full percentage point in the past four months.

With economic conditions in the US improving, Brent futures rose US$1.43 to $118.68 a barrel on Friday trading, while Nymex crude increased $1.22 to $107.94 a barrel.

But other traders cautioned there were enough threats lurking in the background to worry investors.

"External events could stop the rally," said Vyas Jayabhanu, the head of investments at Al Dhafra Financial Brokerage. "Japanese companies are in need of cash back home. That would stop … international investments coming back here."

Another risk was Libya, Mr Jayabhanu warned. "The Libya situation is one thing you should watch. As that escalates people could sit on cash."

But worries about the fiscal deterioration of the euro-zone states could also cloud investors' optimism.

On Thursday, the euro-zone member Portugal missed its budget deficit target a week after the country's parliament rejected austerity measures, which was followed by the resignation of the prime minister Jose Socrates.

Portugal's credit default swaps, which investors see as a reflection of a country's likelihood of default, rose 43 basis points during the week to peak at 579 basis points, before falling slightly on Friday.

Ireland's regulators also concluded that country's banks must raise €24 billion in new capital after stress tests across the sector, Bloomberg News reported.

"[The issue] has been in the shadows for some time, given Japan's earthquake and the developments in the Middle East," Mr Sidani said. "The risk is there."

But other investors said international events were likely to drive the UAE's markets more than happenings at home.

"Usually [the second quarter] is a quiet quarter, except if there is major news," said Alfred Fayek, the head of Mena equity sales at EFG-Hermes.

The UAE's markets will probably take their cue today from Saudi Arabia's stock market, which climbed in trading yesterday, rising 0.91 per cent to 6,622.65.