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Wednesday, 25 August 2010

FT.com - Tehran exchange extends advance

While the Middle East’s stock markets languish in the summer heat, still unable to recover from the financial crisis, one bourse has kept on gaining – the Tehran Stock Exchange.

The TSE has gained 53 per cent so far this year – after climbing 29 per cent last year – and now has a record market capitalisation of $81bn across about 350 companies. This comes in spite of the dire state of the Iranian economy, a tightening international sanctions regime and the most severe global financial crisis in generations.

Fund managers say the stock market has primarily benefited from a lack of investment alternatives for Iranians. Property, long the most popular asset class, has struggled for two years, and falling interest rates have made bank deposits less attractive – particularly in light of high inflation.

Factbox: Key points of Dubai World restructuring plan | Reuters

State-owned conglomerate Dubai World's creditors have been told the company is in need of 'urgent' restructuring as it seeks agreement on a multi-billion dollar debt plan.

A final restructuring proposal, presented to creditors on July 22 and obtained by Reuters, showed that Dubai World is eyeing sales of its prized assets to cut its debt.

Following are the key new elements of the debt proposal."

FT.com - Salalah expands its shipping hub role

A rebellious backwater until the late 1970s, Oman’s southern Dhofar region enjoys the summer monsoon rains or khareef, when Middle Eastern tourists flock to cool off in the verdant hills around Salalah, the provincial capital.

The area has other attractions – for port operators. Salalah is only seven hours sailing time from one of the world’s main trade routes, the straight line between Colombo in Sri Lanka and the Gulf of Suez.

In 1996 APM Terminals, a unit of Denmark’s AP Moller-Maersk, decided to develop the old Raysut harbour near Salalah, giving global shipping a new address.

Turkey joins the Islamic bond revival | beyondbrics | FT.com

Kemal Ataturk, the founder of modern Turkey, was famously no fan of his country’s Muslim roots and culture, and once reportedly wished “all religions at the bottom of the sea”.

One wonders what he would have made of news that a Turkish bank that adheres to sharia, which prohibits interest, is about to sell the country’s first Islamic bond, known as sukuk.

A smattering of Islamic banks - known as “participation banks” in Turkey to assuage secularists - have popped up in recent years, many of them owned by large Gulf-based Islamic financial institutions. But they remain miniscule in size compared to their conventional counterparts.

Is There A Ramadan Effect?

We're now well into the Muslim holy month of Ramadan. In this post I'll take a look at how the GCC markets tend to behave prior to, during and after Ramadan.

In my six years living in Dubai the two comments I hear most with regards to Ramadan and the stock market are:

  1. Nothing much happens during the Ramadan and equity prices don't move much
  2. After Ramadan the market tends to be bullish with stock prices increasing
It's not difficult to see the perceived logic in these comments. Many people tend to take holidays during Ramadan so there are less traders and investors active in the market resulting in subdued price action. However, when everyone returns after Ramadan there is renewed activity in the market which tends to result in increasing stock prices.

I want to test these ideas to see if and to what extent they're accurate. To do this I've looked at the Dubai, Saudi and Kuwaiti equity markets. Specifically, I've analysed the direction of prices (did they go up or down) and the volatility or prices (how much did they move) for each market index during Ramadan, 20 trading days prior to Ramadan and 20 trading days after Ramadan.

Firstly, let's take a look at the percentage change in the DFM General Index during, prior to and after Ramadan.



As you can see, price movements during Ramadan (approx. 20 trading days in duration) have tended to be positive with the DFM General Index increasing in value in 5 out of the last 6 years. The 20 trading days following Ramadan have also been positive but less so than during Ramadan and with only 3 of the last 6 years producing price increases. The average price change in the 20 trading day prior to Ramadan has been slightly negative.

Let's take a look at the same data for the Saudi and Kuwait indexes:




For both Saudi and Kuwait the average price change during Ramadan has been positive whereas the price change in the 20 days after Ramadan has been negative, significantly negative in the case of Kuwait with only one post Ramadan period producing an increase.

On average, the 20 trading days prior to Ramadan have both been positive, outperforming Ramadan price increases for Kuwait and underperforming for Kuwait.

Given the above results I think we can say the following with regards price direction during and around Ramadan:

  1. Index prices have tended to rise during Ramadan
  2. Index prices during Ramadan have tended to perform better than the 20 days following Ramadan
I think this debunks a lot of what I'm used to hearing people say about Ramadan and stock prices. If anything, based on the above analysis, Ramadan is often a reasonable month for stock prices whereas the period following Ramadan is often not.

Next, let's look at the volatility of price changes during, prior and after Ramadan. To do this I calculated the percentage range of index price movements during the three periods. For example, if an index was trading at 100 at the beginning of Ramadan and achieved a high of 125 and a low of 75 during Ramadan, the percentage range would be 50% ( [High-Low] / Starting Value = [125-75] / 100)

The percentage range is just a way of determining the volatility of price changes. High percentage values tell us that prices moved significantly whilst low percentage ranges tell us that prices were quiet, moving in narrow ranges.

Again, let's start by looking at the results for the DFM General Index:


As you can see, I've formatted the table so that high percentage ranges are in dark green and lower values are in light green. What do the results tell us? Well, the average price range prior and during Ramadan were very similar, 12.35% versus 12.89%. However, the range following Ramadan was significantly greater indicating an increase in volatility during this period.

The same results apply to the Saudi and Kuwaiti Indexes as well:


The range of prices during the 20 trading days after Ramadan are higher than the price changes during and prior to Ramadan. For Saudi and Kuwait the average price range was also higher during Ramadan than in the period prior to Ramadan.


Putting It All Together

Continuing the list of observations above we can now note the following:

  1. Index prices have tended to rise during Ramadan
  2. Index prices during Ramadan have tended to perform better than the 20 days following Ramadan
  3. Index prices tend to increase in volatility during the 20 days following Ramadan

Based on this analysis price movements during Ramadan are not particularly muted in terms of either direction or volatility. The 20 days after Ramadan tend to produce more volatility but not necessarily on the upside as is often thought.

Following Ramadan I'll update the above tables to see if this year's index price movements are in-line with the above results. An important thing to note when interpreting the above results, however, is that we're dealing with only a few data points. The market data that I have available only goes back to 2004 so we're only looking a six data points for each index (2004 to 2009). This isn't enough to assign much confidence in the results. Certainly not enough to based trades upon.

That said, I think we can say that the typical views about Ramadan and stock price movements are not borne out by the analysis above.

Enjoy.

Qatar Leads Gulf Markets Lower on Global Growth Concern; Bahrain Advances - Bloomberg

Qatar shares declined the most in almost six weeks, snapping seven days of gains, as a record plunge in U.S. home sales and slowing export growth in Japan fueled concern the global economic recovery is faltering.

Industries Qatar, the Gulf Emirate’s state-controlled petrochemical and steelmaker, lost 1.3 percent and Qatar Islamic Bank SAQ retreated the most in more than a week. Qatar’s QE Index slipped 0.8 percent to 7,143.2, the most since July 15, at 12:07 p.m. in Doha. The Bloomberg GCC 200 Index fell 0.7 percent.

“Declines in global markets have reflected negatively on investor sentiment,” said Ziad Dabbas, a financial analyst at National Bank of Abu Dhabi PJSC, the United Arab Emirates’ second-largest lender by assets. “It’s Ramadan, and that means trading is slower than usual.”

Exclusive: Dubai World prized assets on sale to cut debt | Reuters

Dubai World DBWLD.UL believes it can raise as much as $19.4 billion from selling key assets over eight years, or almost double the current price, if creditors back its restructuring, a document obtained by Reuters showed.

The struggling state-owned conglomerate, which needs to get creditors to agree to its proposal by October 1 in order to go forward with the plan and clean up its balance sheet, thinks sales right now would generate a maximum of $10.4 billion, according to the document, which was obtained on Wednesday.

As a further incentive to creditors burned by the group's ambitious expansion in boom times, it is offering bankers a 'consent fee' of between $150,000 and $800,000 for agreeing to the proposed plan."

Turkey's first Islamic bond offer oversubscribed-sources | Reuters

Turkey's first Islamic bond offering, from lender Kuveyt Turk, fetched a yield of 5.25 percent on Tuesday and was oversubscribed by investors, sources familiar with the matter said.

Kuveyt Turk, which is majority-owned by Kuwait Finance House (KFIN.KW), launched the three-year $100 million sukuk on August 17, paving the way for more Turkish companies to tap the growing Islamic finance market.

The sukuk, which was primarily bought by financial institutions, is the first sukuk ever out of Turkey and the first bank sukuk originating from Europe, said Rizwan Kanji, senior debt capital markets attorney at law firm Norton Rose, which structured the deal."

Dubai-Owned Alliance Medical May Be Put Up for Sale Today, Times Reports - Bloomberg

Alliance Medical Ltd., a U.K. hospital scanner business owned by Dubai International Capital LLC, is likely to be put up for sale today, the London-based Times reported, without saying where it got the information.

The company’s lenders wrote to its directors on Aug. 23 asking them to look at a sale and the board will probably approve that request this morning, the newspaper said.

Both Deloitte, which is advising the banks, and Blackstone, Alliance Medical’s adviser, have valued the company at 300 million to 340 million pounds ($460 million to $525 million), compared with the 600 million pounds Dubai International paid in 2007, the Times said.

Sovereign Sukuk Beating Company Debt First Time Since May: Islamic Finance - Bloomberg

Sovereign Islamic bonds from Asia to the Persian Gulf are beating returns on corporate sukuk for the first time in three months as accelerating economic growth and rising oil revenue shore up state finances.

Government debt that complies with the religion’s ban on interest gained 1.7 percent so far this month, according to the HSBC/NASDAQ Dubai Sovereign US Dollar Sukuk Index, more than the 1.1 percent advance in bonds issued by companies. The last time the sovereign notes performed better was in May, when they dropped 0.5 percent compared with a loss of 2.3 percent on corporate debt.

Malaysia’s Lembaga Tabung Haji fund, France’s BNP Paribas Investment Partners and Duet Mena Ltd. in Dubai forecast government debt will outperform until property prices in the Persian Gulf recover from a slump that prompted credit-ratings companies to downgrade corporate bonds. Average oil prices of $78 a barrel will support fiscal surpluses in the Middle East this year, Moody’s Investors Service said on Aug. 3.