DUBAI/CAIRO, (Reuters) – Gulf investors will look towards second-quarter earnings results for direction, beginning in Saudi Arabia and Qatar, as global factors such as the Greek debt concerns shift to the back burner.
Qatar National Bank, the Gulf Arab state’s largest lender, kicked off the earnings parade this week. The first major regional lender to report earnings, the bank is closely watched for indications of the sector’s performance.
The bank edged past estimates with second-quarter profit of 1.8 billion riyals ($494.8 million) on Wednesday.
Qatar’s central bank in February ordered all commercial banks to shut down their Islamic banking operations by the end of 2011 and investors are unsure how this will impact their profitability.
In Saudi Arabia, lending growth will be a key indicator of the rate of recovery now that bad loan provisions are largely behind the sector.
“The big story that people are waiting for is when will the Saudi banks start growing again?” says Ibrahim Masood, senior investment officer at Mashreq Bank.
“They’re extremely liquid, well capitalized but begs the question why they are not growing. These numbers will be interesting.”
A massive government spending plan announced during the peak of regional unrest, which includes building 500,000 new homes, has boosted sentiment but may not significantly impact the bottom line in the second-quarter earnings.
“It’s still early to expect a lot of this project spending to start flowing through into banks. A more likely growth area for banks is the consumer side,” Masood added.
The United Arab Emirates’ banking sector has drawn buying interest in the weeks running up to the results, but the numbers may fail to impress investors.
“There was a degree of caution coming into (earnings expectations) during the second quarter, with corporate loan quality failing to improve and a general lack of growth,” Raj Madha, Rasmala senior banking analyst, said of Abu Dhabi-listed banks.
Abu Dhabi-listed banks are expected to show faster growth than their Dubai counterparts as higher public sector spending in the former emirate lends support, Madha added.
EGYPT AWAITS DEMONSTRATION FALLOUT
Egyptian market performance next week will likely be determined by the outcome of Friday’s mass demonstration in Cairo’s Tahrir Square.
Analysts are concerned that the continuing lack of political stability in Egypt is frightening away investors and tourists, two important motors of the economy. They say many investors are also concerned that the trials of businessmen have been driven in part by public demands for rapid convictions.
“Foreign investors are looking for more clarity on politics and the economy before re-entering the market,” said one analyst.
Court rulings on Tuesday helped dispel concerns somewhat after three former ministers and businessman Yasseen Mansour, chairman of property developer Palm Hills, were found not guilty of graft charges.
Palm Hills shares soared by almost 10 percent on Tuesday after the court ruled that Mansour was innocent. It gave up some gains on Wednesday, ending down 4.4 percent.
The three ministers still face trials on other charges or have already been found guilty in separate corruption probes.
Among the protesters’ demands for Friday are speedier trials and the replacement of officials who were serving under the Mubarak government.
Traders say the court verdicts could give the protest momentum, in addition to the release on Monday of officers on trial for the killing of Egyptians during the country’s political uprising earlier this year.
Another protest erupted on Monday on a road linking the canal city of Suez to Cairo after a court freed the police officers.
“Local sentiment is very concerned about Friday’s demonstration,” says Mohamed Radwan of Pharos Securities. “The acquittals … definitely made many Egyptians angry.”
One analyst said that share volumes were nonetheless likely to remain low as trade entered the slow summer months.
“Retail investors may renew their interest in small caps next week. News flow will remain important, as we saw with Palm Hills,” he said.