CAIRO/DUBAI, (Reuters) – The verdict in the trial of ousted President Hosni Mubarak, due on Saturday, is a new cloud hanging over Egyptian stocks which were hammered this week after the country’s two most divisive figures made it to the presidential election run-off.
Mubarak, 84, was charged with graft, abuse of power and ordering the killing of protesters during the 18-day uprising that ousted him on Feb. 11, 2011. Court hearings in the trial concluded earlier this year and the verdict is due on June 2.
A not-guilty verdict would probably work against Ahmed Shafiq, who was Mubarak’s last prime minister, in the presidential election run-off but analysts say any violent street protests against such a verdict could work in his favour.
“The consequences of Mubarak’s verdict could be huge, whether for Shafiq’s candidacy or for the street,” said Ahmed Abu Taleb of Pharos Securities. “Next week all depends on Saturday’s verdict. Volatility will be high.”
The benchmark index lost 3.5 percent on Sunday and 1.3 percent on Monday after it became clear that Ahmed Shafiq, a 70-year-old former air force chief, would be pitted against senior Muslim Brotherhood official Mohamed Mursi in the June 16 and 17 run-off vote.
The index fell a further 1.1 percent on Tuesday to a six-week low after an arson attack on Shafiq’s headquarters added to the tension surrounding the landmark election.
“I don’t think anyone is paying attention to individual stocks. They are just looking at the political situation,” said Mike Millar, head of research at Naeem Brokerage.
An exception might be Orascom Construction Industries (OCI) , which plans to separate its construction and fertiliser businesses into two new companies. It got shareholder approval on May 17 and is now awaiting a final go-ahead from the regulator.
The market could also be affected by any number of other political events, Abu Taleb said.
“Foreigners have been dumping for the last few months. Only some speculative Arabs have been buying,” he said.
Gulf investors will remain cautious next week as eyes are trained on developments in the euro zone’s spiraling debt crisis, while trading volumes will be depressed as many investors and traders escape the summer heat.
A lack of regional news has seen local bourses track declines on global markets but volatility has lessened in lackluster trade. Many institutional investors are waiting for clarity on the global front before they can increase positions.
Saudi Arabia’s market, the largest in the Arab region with a market capitalisation of $368 billion, is seen holding its ground though, with chances of gains in the coming sessions following recent declines.
“The short-term view may be slightly dull due to summer, but we feel a small rebound is likely in Saudi next week given that the market is oversold and selling pressure has abated,” said Sleiman Aboulhosn, assistant fund manager at Al Masah Capital.
The kingdom’s index has tumbled 11.3 percent to levels near 7,000 since early April’s three-and-a-half year peak. It rallied 31 percent early this year, boosted by confidence in the local economy.
The medium-term outlook is also upbeat for the world’s top oil exporter whose real estate and infrastructure sectors are benefiting from a $93 billion handout from the king announced in March last year during the Arab Spring. This included $66.7 billion for building 500,000 new homes.
“We’re seeing continued growth in bank deposits, up 8 percent year-on-year, and oil revenues are ensuring that spending plans remain intact. Of course, there will be a time lag when it comes to project awards but we expect to see a lot more before year-end,” Aboulhosn said.
For those investors willing to sit through the traditionally slower months of summer, current levels are attractive, according to investors.
“After the rally we had in the beginning of the year, this is a very good place to reallocate funds – for some people who didn’t participate, they can jump in to catch up with the gains,” said Faisal Al-Othman, portfolio manager at Riyadh-based Arab National Bank.
Technical analysis however, points to a dip towards 6,800 levels before the market can rebound towards 7,200 points. Al-Othman said the market will be caught within this range for the coming few months.
Elsewhere in the Gulf, Dubai and Abu Dhabi’s bourses have seen little volatility and trading volumes have tapered off as euro zone gloom and approaching summer spurred many investors to cut risk.
“In the bigger global picture, I think many equity markets are due for further declines after a short-term rally. That could put pressure on UAE and GCC (Gulf Cooperation Council)markets,” said Bruce Powers, head of research and analysis at Trust Securities.
He said the Dubai index was hovering around a support area – near 1,470, which could hold for a rally.
Abu Dhabi’s benchmark, which closed at 2,450 on Wednesday, may target 2,462, with a bullish divergence on the relative strength index, a commonly used price momentum indicator.