* Foreign interest in big Dubai stocks such as Emaar
* Trading volumes shoot up
* Important chart resistance at Dubai’s 200-day average
* Gulf markets may stay firm until Q1 earnings
* Egypt bullish on parliamentary elections
By Matt Smith and Yasmine Saleh
DUBAI/CAIRO, Feb 1 (Reuters) - Middle East stocks are set to extend gains this month as investors’ risk appetite increases, though much of this optimism is based on a bullish start to the year by world markets, so any ill winds globally could cool the regional rally.
The Dubai and Abu Dhabi bourses slumped to multi-year lows on Jan. 16, but have since risen 11.7 and 7.5 percent, while Saudi Arabia’s benchmark is at an eight-month high. These gains came despite less-than-stellar fourth-quarter corporate earnings; sharply higher trading volumes in the past week confirm money is returning to the markets.
“There wasn’t a massive disappointment (over earnings), but a lot of the strength we’re seeing in our markets is down to improving sentiment, because not a lot else has improved - there’s a high global correlation at work,” said Ibrahim Masood, senior investment officer at Mashreq Bank in Dubai.
“Since mid-January, there has been some offshore involvement in the big UAE stocks like Emaar Properties, which some domestic liquidity has piggy-backed onto.”
Dubai ended Wednesday at 1,454 points, near its 200-day moving average at 1,467 points, which is a key resistance level, said Musa Haddad, head of the regional equity desk at National Bank of Abu Dhabi.
”If the market moves higher from here and breaks above 1,500, it would take us out of a bear market. If it stops at the 200-day average, then it signals we’re in for some profit-taking.
“But the market is looking good and even if there’s some downside I would see this as a buying opportunity.”
The Dow Jones Industrial Average is up 3.4 percent this year, while the Japanese Nikkei has gained 4.1 percent over the same period, with global investors seemingly more confident the euro zone debt crisis is easing.
“There’s now more of a global risk-on trade, which is also being played out in the region,” said Shahid Hameed, Global Investment House’s head of asset management for the Gulf.
”Global markets continue to hit new highs and that has created upward momentum in our markets as well.
“Dividends will come through in March and then April will see Q1 results announcements, which will be key in determining market direction for the rest of the year. Between now and then the market should remain in an upward trend.”
Egypt is one of the top performing markets globally this year, rising 28 percent, and further gains are forecast as stocks recover from the ravages of 2011, when the index slid nearly 50 percent because of political and economic turmoil.
The country’s recent parliamentary elections, which were widely praised for being fair, are likely to boost foreign interest in Cairo stocks, traders said.
“Having an elected parliament is a main reason behind the gains we are seeing today and we expect to see more gains in the coming weeks,” said Mina Iskander of Egyptian investment bank EFG-Hermes.
Elections under the 30-year-rule of former president Hosni Mubarak were derided as rigged to produce a majority for the ruling party, so the new parliament is seen as a crucial step towards establishing political legitimacy in the Arab world’s most populous nation.
“As long as the process of reestablishing the state’s major institutions continues, we are most likely going to see more gains in the Egyptian market,” said Ahmed Khalil, trader at Cairo Capital Securities.
Yet EFG’s Iskander warned that Egypt’s economy was still in crisis, with foreign reserves sliding and the government struggling to finance its budget deficit.
“I don’t think we will have a long rise in the market,” he added. “It will go up for few weeks over that feeling of optimism, but could go down later when companies start releasing their annual earnings, which given the current political situation are not expected to be good.”