GCC Market Analytics: October Seasonality: Market Headwinds

After the across the board market gains in September what can we look forward to in October? Well, based on historical market performance the next couple of months have tended to be the weakest of the year.

The chart below shows the average daily perentage change for each GCC market during each calendar month. As you can see, October and November are the worst performing months of the year.

After September's strong gains it will be interesting to see if the markets can overcome this seasonal tendency.

Enjoy.

Iraq raises proven oil reserves figure by 25 percent | Reuters

Iraq raised its proven oil reserves figure by a quarter on Monday in a bid to match the clout of leading producer Saudi Arabia and strengthen its case for OPEC to grant it a higher output quota.

New estimates at the giant West Qurna and Zubair fields helped push the total figure to 143 billion barrels, but some analysts said they were skeptical about the massive revision and were not expecting OPEC to deal with the Iraqi quota until Baghdad manages to raise production and exports.

'The oil reserve is for 66 discovered oilfields in Iraq, and there are many others that have not been discovered yet,' Oil Minister Hussain al-Shahristani. 'It is expected this figure will be increased when these oilfields are discovered."

`Black Swan' Author Taleb Says Dubai's Economy Is More Robust Than U.S. - Bloomberg

Nassim Nicholas Taleb, whose book “The Black Swan” described how unforeseen events can roil global markets, said Dubai’s economy is more robust than that of the U.S. as its debt problem can be “controlled.”

“Even if you take perhaps the worst of emerging markets, a place like Dubai, you realize Dubai is more robust than the United States,” Taleb said at a mutual funds conference in Manama, Bahrain today. “Dubai has been borrowing to put buildings on postcards. It can stop that, but America needs to borrow just to open the doors in the morning. That’s why I’m not comfortable with the United States.”

Prior to the collapse of Lehman Brothers Holdings Inc. in September 2008, Taleb warned that bankers were relying too much on probability models and were disregarding the potential for unexpected catastrophes. His book labeled these events black swans, referring to the widely held belief that only white swans existed until black ones were discovered in Australia in 1697, and said that they were becoming more severe.

Kuwait Shares Lead Gulf Lower on Concern Recent Gains Overdone; Zain Falls - Bloomberg

Kuwait shares fell for the first time in six days on concern recent gains are overdone, led by Mobile Telecommunications Co., the company known as Zain. Dubai shares dropped.

Zain slid for a second day after HSBC Holdings Plc lowered its recommendation on Kuwait’s biggest mobile-phone company. The Kuwait SE Price Index dropped 0.6 percent to 6,947.10 at the 12:30 p.m. close in Kuwait City. The index gained 6.8 percent in the third quarter. The Dubai Financial Market General Index declined 0.5 percent and the Bloomberg GCC 200 Index lost 0.4 percent.

Emirates Telecommunications Corp., the biggest telecommunications company in the Middle East by market value, on Sept. 30 offered to buy 46 percent of Zain at 1,700 fils a share. Kuwait’s Kharafi Group, the second-largest shareholder in Zain with an about 13 percent stake, is inviting owners of fewer than 300,000 Zain shares to join in the sale, according to an advertisement in Al-Qabas yesterday.

Nawras Fair Value at Up to 911 Baisas at Bank of Oman; Above Nawras' Range - Bloomberg

Nawras, the Omani phone company selling shares in an initial public offering, has a fair value of as much as 911 ($2.36) baisas a share, National Bank of Oman SAOG estimates. That is above Nawras’ price range.

The company, controlled by Qatar Telecom QSC, set a range of 702 baisas to 902 baisas a share in its book-built IPO that opened Sept. 15 and will run for a month. National Bank of Oman sees a fair value of at least 781 baisas a share.

The share is “a good buy for the long-term, given the perceived growth of the business and the high dividend payout expectation,” National Bank of Oman said in a research report dated Sept. 27 and obtained by Bloomberg News today.

Essdar of Dubai Seeks Gulf Bank Portfolios for New Distressed Debt Fund - Bloomberg

Essdar Capital Managers Ltd., the distressed debt funds company whose major shareholder is the Abu Dhabi royal family, will seek to buy bad loans from banks across the Gulf Arab region as it plans a new $500 million fund.

The loans at banks in countries including the United Arab Emirates and Kuwait will offer “a very consistent long-term opportunity” in the next three to five years, Suketu Sanghvi, Essdar’s senior managing director, said in an interview in Dubai on Sept. 30. Essdar will seek to purchase these loans at 20 to 30 cents on the dollar and will sell assets backing the loans or set new terms on them, Sanghvi said.

Non-performing loans soared in the U.A.E. and across the Gulf as economic growth slowed after the global credit crisis sparked loan defaults. Provisions for bad loans at U.A.E. banks rose 41 percent in August from a year ago to 37.2 billion dirhams ($10.1 billion), according to the central bank.

Fund file: homework on frontier markets | beyondbrics | FT.com

Ah, frontier markets - exotic countries, daring investments and spectacular returns. That’s the theory, but many investors gave up on it during the financial crisis, sending stocks tumbling as they withdrew their funds.

Now the frontier bulls are back, but investors are faced with limited opportunities - or endless legwork. Two of the very few exchange-traded funds that claim frontier appeal - the Claymore/BNY Mellon Frontier Markets ETF and the Powershares MENA Frontier Countries Portfolio - actually have a fairly conservative approach. Instead, when it comes to frontier markets, private equity continues to lead the way.

As Elaine Moore points out in this week’s FTfm, the debate over what constitutes a frontier market means meaningful data are hard to obtain. But the Emerging Markets Private Equity Association reported in August that private equity investment in emerging markets overall had risen to $13bn in the first half of 2010, up from $8bn the previous year.

Sovereign funds develop new tricks of trade - Maktoob Business

Sovereign funds are developing in-house portfolio management techniques after the global crisis, a worrying trend for asset management companies, an executive at research firm Cerulli Associates said.

Global asset managers, who have historically pocketed attractive fees by managing a significant share of the sovereign funds, need to be aware of this development while approaching them for funds, according to Shiv Taneja, managing director at Boston-based Cerulli.

"The world's most sophisticated funds are in-sourcing rather than outsourcing. Now that's not very good news for asset management firms," Taneja told Reuters in an interview.

GCC Market Analytics: September GCC Index Review

All GCC indices rose in value during September but the DFM General Index was the stand out performer, rising 13.48% over the month.

In part this was a case of the DFM General Index playing catch up with the other GCC indices. Going into September the Index was down 18% for the year, almost twice as much as the next worst performing index. Dubai is still the worst performing Index so far this year but is now down only 6.65%.

On the volume front the DFM General Index was also the leader in September with a +175% increase in shares traded compared to the previous month. However, in absolute terms the DFM General Index volume during September was nothing special ranking only fifth highest month so far in 2010.

Enjoy.

[ Click to enlarge ]

GCC Investments More Attractive Than South Africa, Investec's Power Says - Bloomberg

Investec Asset Management, a South African company which manages $70 billion, said the Persian Gulf is more attractive for equity investments than either South Africa or Eastern Europe.

“I would put the GCC ahead of South Africa and Eastern Europe,” Michael Power, global strategist at Investec Asset Management, said in a telephone interview from Bahrain today, referring to the six Gulf Cooperation Council states. A higher oil price “means there’ll be signs of life in the Gulf economies so it’s starting to look attractive.”

The BGCC 200 Index, a weighted index of the top 200 equities in the region, is up 7 percent this year, while the South African benchmark stock index has risen 5.8 percent. Gulf economies are forging ahead with spending plans with the price of oil at $82 a barrel, up 3 percent this year.

Egypt's Sawiris, VimpelCom Said to Be Closer on Merger Agreement - Bloomberg

VimpelCom Ltd., Russia’s second- largest mobile-phone operator, and Egyptian billionaire Naguib Sawiris may say as early as today that they are closer to agreement on merging their phone assets, two people familiar with the matter said.

The two sides have for weeks discussed the transaction to create a company valued at more than $25 billion. High-ranking Russian leaders are set to convene in Algeria -- where Sawiris’s unit is entangled in a tax dispute -- from Oct. 6, which may be a catalyst for an agreement on a deal, said the people who declined to comment because the talks are private.

Sawiris would become a significant minority investor in the new company, which will include his Weather Investments SpA’s 51 percent stake in Egypt’s Orascom Telecom Holding SAE and Italian mobile operator Wind Telecomunicazioni SpA. The deal would create an entity with a combined mobile subscriber base of more than 200 million customers and give VimpelCom access to markets in Africa and the Middle East.

AIG Lowers Value of Asia IPO to Get Kuwait Commitment, FT Says - BusinessWeek

American International Group Inc. has had to lower its valuation for an initial public offering of its AIA Group Ltd. unit in Hong Kong in order to ensure a $1 billion commitment from the Kuwait Investment Authority and other “cornerstone investors,” the Financial Times reported, citing people familiar with the matter.

AIG had to abandon a plan to sell shares in its Asia unit that would value AIA at $35 billion to $37 billion and after extensive discussions, KIA has signed up to the share sale on the basis that AIA will be valued at between $30 billion and $32 billion, the FT said.

No Shariah Law for Breaking Deals Gets Review: Islamic Finance - Bloomberg

The leading global Islamic Finance accounting regulator is introducing conditions for contracts that comply with religious laws, seeking to standardize an industry with $1 trillion in assets under management.

The Bahrain-based Accounting & Auditing Organization for Islamic Financial Institutions will for the first time provide a “Shariah-compliant way” for parties to enter and exit contracts, Mohamad Nedal Alchaar, secretary-general of the agency, based in Manama, Bahrain, said in a phone interview Sept. 30. The rules will be enforced by December after approval by the advisory board, he said.

“The impact of these standards would be that you will be completely protected from a Shariah perspective,” Alchaar said. “The guidelines spell out the rights and duties of both parties to the contract.”