MIDEAST WEEKAHEAD-Markets prey to jittery retail investors

Wed Nov 28, 2012 11:19am EST

Related Topics

* Egypt tumbles after Mursi decree

* Saudi hurt by concern over king's health

* In both cases, foreigners and institutions held onto stocks

* Longer-term economic outlook may not have changed

By Nadia Saleem

DUBAI, Nov 28 (Reuters) - Slides in the Egyptian and Saudi Arabian stock markets this week underlined a major risk surrounding them: they are prey to sell-offs by jittery local individual investors, even when the longer-term economic environment looks positive.

Egypt's main stock index <.EGX 30> plunged 11 percent between Sunday and Wednesday after President Mohamed Mursi issued a controversial decree expanding his powers, which triggered sometimes violent street protests.

The Saudi index lost 2.0 percent during that period, hitting a 10-month low at one stage, because of the unrest in Egypt and concern about the health of Saudi King Abdullah, who is in his late 80s and had an 11-hour back operation on Nov. 17.

In both cases, many foreign investors and local institutions held onto their positions or even bought stocks because they did not see a change in the countries' economic prospects, traders and analysts said. But local retail investors sold heavily, pushing the markets down.

"We don't expect a significant change in terms of economic policy - some of this fear may be unjustified and is in reaction to headlines and rumors," Asim Bukhtiar, head of research at Riyad Capital, said of the Saudi market.

"The economy has been on a strong footing and we don't see that changing."

EGYPT

Mursi's move worried investors in Egypt because it suggested his administration might not be open to compromises with the opposition. The resulting conflict could delay the drafting of a new constitution and complicate economic policy-making.

"Even if the crisis passes, this means we will have to wait until we have a new parliament to abolish the president's powers...If the constitution assembly finishes in time and the document goes to a referendum, who says it is going to be approved," said Osama Mourad, chief executive of Arab Finance Brokerage.

"If it isn't approved, it means the president will keep these powers for a year."

That prospect prompted local investors to dump stocks this week; they were net sellers on every day between Sunday and Wednesday, selling a net 167 million Egyptian pounds ($27 million) in total, according to stock exchange data.

However, many analysts said the political strife would not necessarily alter Egypt's improving economic picture: investment and growth have been picking up since the turmoil of last year's revolution. A preliminary agreement with the International Monetary Fund this month to obtain a $4.8 billion loan, if it is approved by the Fund's board at a meeting expected next month, will help to stabilise the country's external balance.

"If the political side of things starts to dissipate, which is possible in Egypt because you've seen volatility there, then you'll see a lot of people who missed the early-year rally come in to buy," said Akber Naqvi, hedge fund portfolio manager at Dubai-based Al Masah Capital.

Non-Arab foreign investors bought a net 42 million pounds worth of stocks during the four days, the exchange data shows. Arab investors from outside Egypt were even more bullish, buying a net 124 million pounds.

Fadi Al Said, Dubai-based head of investments at ING Investment Management, said the Egyptian market, which remains up 33 percent since the end of 2011, had risen too fast this year, so he would not rush to buy.

But he added: "Having said that, there are some companies that corrected well and it's a good opportunity to dip your toes in - with the perception that if things get worse, it's a chance to buy even more at lower prices."

SAUDI

In Saudi Arabia, traders said the selling was almost exclusively by retail investors, while local institutions and foreigners held on to their positions. Foreigners are limited to investing indirectly through instruments such as swaps, so they do not have a big presence in the market.

Analysts noted that the question of the immediate succession to Abdullah was already settled; his heir has been designated as Crown Prince Salman, who is 76. In any case, analysts believe the direction of Saudi economic policy has been firmly set and is unlikely be altered much by any political change.

The economy is growing strongly, with oil prices high and bank lending expanding at double-digit rates.

Concern over the king's health eased on Wednesday when Abdullah appeared on state television for the first time since his operation. He looked in good health as he sat in a chair receiving members of the royal family and officials in Riyadh.

"A market like Saudi succumbs to rumours because it's driven by retail investors," said Naqvi at Al Masah Capital.

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