Reuters/Dubai
Gulf stock markets are vulnerable to a pullback if central banks in the US and Europe don’t signal more stimulus steps in the next couple of weeks, although high oil prices may cushion any fall.Trading activity in the Gulf usually weakens during the holy month of Ramadan, which ended on August 18 this year, and the subsequent Eid holidays, which for many people last about a week.But stock prices in Saudi Arabia, the United Arab Emirates and Qatar performed more strongly during Ramadan this year than they did last year. Regional trading volumes were also higher, with the exception of Qatar.However, the Gulf markets were largely following global trends, as investors bet US Federal Reserve chairman Ben Bernanke would signal quantitative monetary easing during his speech this Friday at an annual meeting of central bankers and economists in Jackson Hole, Wyoming.Investors are also hoping that the European Central Bank will soon unveil measures, perhaps at a policy-setting meeting on September 6, to ease borrowing stress in struggling countries such as Spain and Italy.Markets may now retreat if the hoped-for policies do not materialise, and even if they do materialise, some good news is already incorporated in stock prices so room for further gains may be limited for now, traders and analysts said.“In the very short term, I don’t think decisive action will come out of Europe and definitely not the US,” said Ibrahim Masood, senior investment officer at Mashreq Bank in Dubai.“I expect to see some weakness in regional markets. A lack of a clear catalyst is keeping everyone in check.Investment bank EFG-Hermes said in a research note: “We suspect that Fed Chairman Bernanke’s speech will not be sufficient to drive a further wave of risk-on buying, particularly since any substantive indications of further stimulus are not guaranteed.”Dubai’s main market index is up 15% so far this year, buoyed by signs that the real estate market is starting to recover after a crash in 2009-2010.The Saudi Arabian stock index is up 11%, on the back of strong economic growth fuelled by global oil prices above $100 a barrel.However, much of the stock buying in recent weeks has been in the form of retail investors chasing small-capital stocks, rather than institutional investment in blue chips, analysts say. Retail investors are believed to be particularly prone to pulling out their money if the markets start to turn down.“Dubai, Abu Dhabi, Saudi Arabia and Qatar have the potential to drop 2 to 4%,” said Rakan Himadeh, equity portfolio manager at Al Mal Capital in Dubai, although he added that if global markets tumbled in response to a disappointing Fed decision, ECB officials might issue statements to reassure them.Technical analysis already suggests Dubai may be in for a short-term pull-back. Last week the index hit its highest level since early May but it then fell back, posting a negative 14-day momentum divergence — a classic sign of the end of a rally — and breaking below the uptrend line extending back to June.In the longer term, though, the Gulf may resume outperforming global markets, analysts said. Economic growth and government finances are stronger than in most parts of the world; many investors have not yet re-entered the Gulf markets after Ramadan and the Eid holidays, and they may take the opportunity to buy if prices fall substantially.“Everyone regionally is positioned or is positioning for being long these markets,” Mashreq’s Masood said.“Fundamentals all look good, especially in Saudi banks, economic growth is on and politics is generally stable. It’s just a matter of investors waiting to see when that starts translating into price performance.”