The Egyptian Exchange bell is seen at the bourse in Cairo (file). Egypt’s bourse rose to a fresh five-week high yesterday as local investors bargain-hunted, and as Thursday’s 0.5 percentage point cut in official interest rates helped sentiment.

Reduction in Fed stimulus possible as soon as October; some funds selling ahead of Q3-end; Dubai bucks downtrend but near major chart barrier; most foreigners still staying out of Egypt rally

Reuters

Dubai

Renewed worries about the possibility of US monetary tightening caused most Gulf stock markets to drop yesterday, while Egypt rose on the back of an interest rate cut by its central bank.

Like other markets around the world, Gulf bourses rose last week in response to the US Federal Reserve’s surprise decision to maintain its monetary stimulus. But on Friday, St Louis Federal Reserve Bank President James Bullard said in an interview on Bloomberg TV that a start to winding down the stimulus was possible in October, depending on economic data.

So the euphoria surrounding last week’s Fed decision is fading quickly. Although the booming Gulf is less vulnerable than most regions to tighter US monetary policy, its markets are near multi-year peaks that were hit in August, leaving them vulnerable to profit-taking.

“Renewed talk that the Fed could be slowing down the stimulus and the US markets are affecting us - foreigners are cutting positions,” says Yassir Mckee, wealth manager at Al Rayan Financial Brokerage in Doha. “Some are selling now to show cash on the books, because it’s almost the end of the third quarter.”

Trading volumes in the Gulf were mostly modest yesterday as Saudi Arabia, by far the region’s biggest market, was closed for a two-day National Day holiday.

In Dubai, the index gained 0.6% to 2,681 points, a near four-week high, as buyers returned after a dip early in the day. The market faces major technical resistance on its August peak of 2,762 points.

Mashreq Bank surged its daily limit of 15% to a near four-month high, extending its gain since the bank said it would increase its foreign ownership limit to 20%. It jumped 15% on Thursday; trading remains very thin, however.

Union Properties, a popular target for retail investors, climbed 12%.

Egypt’s bourse rose to a fresh five-week high as local investors bargain-hunted, and as Thursday’s 0.5 percentage point cut in official interest rates helped sentiment.

Shares in Arabia Cotton Ginning jumped 9.9% to 5.22 Egyptian pounds, their highest since November 2010, after the firm said it was looking to add real estate as a business line and was waiting for approvals to sell some of the land it owns. It faces strong chart resistance around 6.0 pounds, which has capped it since late 2008.

“Locals have been active in the last period and are the driving force,” said Amr Reda, assistant vice-president at Pharos Securities Brokerage in Cairo. “On the political front, everyone is waiting for the constitution to be drafted. The security situation is better than before and there is a strong belief that the army is dealing with insurgency.”

Last week, security forces stormed a town near Cairo dominated by supporters of ousted president Mohamed Mursi, exchanging fire with militants.

As expected, the central bank cut its overnight interest rate by 50 basis points on Thursday; although the move may not prompt any immediate rise in corporate investment, it added to a feeling that economic conditions might gradually be normalising.

Foreign investors mostly still appear to be staying out of the stock market, however, suggesting its rally could fade quickly as the main index nears technical barriers.

The index rose 1.0% on Sunday to 5,587 points, its highest level since August 14. It faces major technical resistance at 5,682 points, the August peak hit in the wake of Mursi’s ouster.

Elsewhere in the Gulf, Abu Dhabi’s index slipped 0.1% to 3,809 points; Kuwait’s measure fell 0.03% to 7,846 points; Oman’s benchmark was down 0.3% to 6,581 points, while Bahrain’s gauge dropped 0.3% to 1,195 points.