Arabian Gulf stocks may consolidate on Wednesday after Wall Street and other global bourses pulled back overnight in response to New York Federal Reserve president William Dudley’s statement that US interest rates could rise as soon as September.
Brent crude oil futures rose to a fresh multi-week high above US$49 a barrel overnight but weakness in most major Gulf stock markets on Tuesday suggested they had for now become less sensitive to the rebound in oil prices.
Dubai’s index fell 0.4 per cent to 3,587 points on Tuesday, retreating from technical resistance at its April peak of 3,605 points.
Qatar’s main stock index jumped 2.2 per cent, largely because of big gains in three stocks that analysts now think may be included in FTSE’s emerging market index when Qatar is upgraded to that status on September 19: Qatar National Bank (QNB), Qatar Insurance and Qatar Navigation .
Those stocks may now mostly reflect the good news, so further gains may prove more difficult. EFG Hermes estimates that FTSE-related fund inflows into all Qatari stocks next month will total US$550 million; the capitalisation of QNB alone is about $38.9 billion.
The rally in Qatar’s stock market may have been too strong for its own good.
The QE Index’s world-beating advance on Tuesday put it about 7 per cent above the average of analysts’ price targets, the most among more than 70 gauges tracked by Bloomberg. The measure’s 14-day relative strength index climbed to 82, past the level of 70 that typically signals a security may be poised to reverse direction.
The shares have outpaced a wider rally across the six-nation GCC amid a rebound in energy prices. The gains accelerated this week when FTSE relaxed criteria for including the equities.
“People are putting money in the Qatari market not because they’re absolutely convinced of its fundamentals, but to anticipate passive flows following the FTSE upgrade,” said Simon Kitchen, an equity strategist at Cairo-based EFG-Hermes, the Arab world’s largest listed investment bank.
“It’s a one-off event. Some investors are wondering how long the rally can last.”
Follow The National’s Business section on Twitter