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Mideast Markets Shun Violence as Shares Gain, Yields Fall

Mideast Markets Shrug Off Violence as Shares Gain, Yields Fall
Egyptian protesters throw stones to the riot police during clashes near the US embassy in Cairo on September 14, 2012 against a film mocking Islam. Source: AFP/Getty Images

Investors in Middle East markets are shrugging off violent protests, with Egypt’s benchmark index climbing to the highest since January 2011, after the U.S. Federal Reserve announced new stimulus measures.

The EGX30 Index gained for a second day, rising 1.3 percent to 5,895.63, the highest close since Jan. 26, 2011, the second day of the revolt that ended President Hosni Mubarak’s three-decade rule. The index is up 63 percent in 2012, outperforming more than 90 global indexes tracked by Bloomberg. Dubai’s measure rose 1.4 percent yesterday, before falling 0.4 percent today, while the Saudi index has gained 0.6 percent this week. Egypt’s nine-month treasury-bill yield fell to a 10-month low at an auction yesterday.

Hundreds were hurt during clashes between protesters and authorities in Egypt, Tunisia and Sudan against a film denigrating Islam, before protests died down over the weekend. Clashes in Cairo’s Tahrir Square stopped Sept. 15 after Egypt’s main Islamist groups called for calm. Libya arrested about 50 people in connection with the attack on the U.S. consulate in Benghazi that left the U.S. ambassador and three others dead.

“Incidents like these have happened in the past, even before the Arab Spring, and they are reactions rather than structured and ongoing violence,” said Fadi Al Said, a Dubai-based senior investment manager at ING Investment Management. “Market and investor sentiment doesn’t want anything to spoil the honeymoon” after the Fed’s decision to implement a third round of asset purchases.

Credit Risk Drops

The Fed said Sept. 13 it would embark on open-ended purchases of $40 billion of mortgage debt a month as it seeks to boost growth and reduce unemployment. The move helped boost the MSCI World Index 2.7 percent last week. The measure slipped 0.2 percent at 1:36 p.m. in London.

Stock markets in Qatar and Bahrain advanced today, while the yield on Dubai’s benchmark 5.591 percent bonds maturing in June 2021 was little changed at 4.53 percent, near the lowest level on record.

Egypt’s five-year credit default swaps have tumbled 85 basis points this month to a one-year low of 400 at the end of last week, according data provider CMA. Tunisia’s contracts dropped 11 basis points on Sept. 14 to 303, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The yield on Egypt’s nine-month treasury bills plunged 102 basis points, or 1.02 percentage points, at yesterday’s sale.

“The market is more or less immune from protests now, in addition to the fact that there’s a lot of cash on the sidelines waiting to be deployed on any weakness, so that’s keeping a bid under the market,” said Wafik Dawood, director of institutional sales at Cairo-based Mega Investments Securities.

Aid Pledges

The U.S. embassy in Cairo has resumed operations and Egypt’s Finance Ministry said the North African country will receive a $2 billion aid package from Turkey.

Turkey’s pledge comes after Qatar, the world’s biggest exporter of liquefied natural gas, said it would deposit $2 billion with Egypt’s central bank and invest another $18 billion in projects. Egypt, which hosted a delegation of U.S. businesses last week, is due to resume talks with the International Monetary Fund this month for a loan of as much as $4.8 billion as the country aims to double economic growth this fiscal year to more than 4 percent.

‘Shrugging Off Concern’

The EGX 30’s relative strength index surged to 83 today after surpassing 70 last month. A reading above 70 indicates to some investors that a security is poised to decline. At the 6,000-point level, “we will find some additional supply, until some real progress is made and various recent pledges are actually seen to be deployed,” said Julian Bruce, the Dubai-based director of institutional sales trading at EFG-Hermes.

In Dubai, Emaar Properties PJSC climbed 3.2 percent yesterday after the developer of the world’s tallest tower said it will build a hotel near the Burj Khalifa to capitalize on the city’s hospitality boom. The shares lost 0.5 percent today. EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, rallied 3.5 percent to a four-month high yesterday after shareholders approved the creation of an investment bank with Qatar’s QInvest. The shares lost 3.2 percent today.

“Middle East and North Africa markets are shrugging off any concerns relating to disparate Islamic protests and focusing instead” on the Fed’s stimulus plan, said Bruce.

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