Middle East equity markets are braced for another rocky week, with volatile global exchanges likely to dictate direction in the absence of compelling local factors to distract investors from negative news about the world economy. The focus on the global economy means a declining pool of active traders is not discriminating much between the fundamental factors behind individual Middle East stocks. Instead, it is trying to ride the ebbs and flows of global sentiment to make a quick profit on the most liquid names. Global shares ended sharply lower Friday. The Dow Jones industrial average was down 280.90 points, or 2.49 percent, at 11,014.91. The Standard & Poor's 500 Index was down 27.22 points, or 2.30 percent, at 1,158.68. The Nasdaq Composite Index was down 49.98 points, or 1.98 percent, at 2,479.16. The S&P 500 was on track to end the week more than 1 percent lower. In London, the FTSE 100 index of leading companies fell 2.35 percent to 5,214.65 points. In Paris, the CAC 40 slid 3.60 percent to 2,974.59 points, and in Frankfurt the DAX tumbled 4.04 percent to 5,189.93 points. Elsewhere in Europe, Milan plummeted 4.93 percent, Madrid 4.44 percent, Lisbon 2.5 percent, Brussels 3.2 percent and Amsterdam 2.6 percent. The euro fell below $1.37 for the first time since February and stood at $1.3647 in late trading in London from $1.3880 late Thursday. Long-term investors and funds remain largely inactive, so markets are listless and will lack direction until a clearer picture emerges of the chances of a US recession and the ultimate consequences of the euro zone debt crisis. "People are sitting on the sidelines and don't want to make a serious commitment because uncertainty and volatility are very high," said Shakeel Sarwar, head of asset management at Securities & Investment Co. in Bahrain. Regional markets moved little over the summer months and so recent declines have been less savage than those experienced internationally. But 2011 has been tough for investors and brokers alike. Volumes in Kuwait have fallen by more than half, while this year's turnover on the United Arab Emirates bourse seems poised to fall further from a six-year trough in 2010. All regional bourses are in the red for 2011, with Egypt the biggest loser, falling by more than a third. Qatar has proved the most robust, dipping only about 4 percent; it has been helped by double-digit economic growth projections for Qatar. The negative performance comes despite Gulf companies' profitability rising by about 20 percent in the first half of 2011, said Sarwar. "Third-quarter results might provide some respite, but the key variable is the health of the global economy." The third-quarter corporate results reporting season will start in about a month, but for now investors have a shorter-term horizon. "Q3 results are still a little way off, but Q2 was pretty strong for US corporates and investors will be looking very carefully at whether the perceived slowdown has already caught up with companies – regional investors will be doing the same in the Gulf, especially in cyclical, commodity-driven stocks," said Hashem Montasser, managing partner at Frontlane Capital, a Dubai-based asset management firm. Signs that some foreign funds are withdrawing from Gulf markets are a major dampener for stocks, analysts said. "Local investors, if they sell one stock, they will buy another the next day," said Robert Pramberger, acting head of asset management at Doha-based investment company The First Investor. "It's international investors driving the market. If this selling finishes within a week or two, we could see the market moving up again." He predicted the services and utilities sectors as well as other stocks based on local demand would outperform in Qatar, with the same trend also playing out in Saudi Arabia. The Saudi cement and retail sectors are up 20 and 11 per cent this year, while petrochemicals – often used as a proxy for Saudi Arabia's oil industry, since petrochemical demand is closely tied to crude oil prices and the global economy - are down about 7 percent.
