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MIDEAST MARKETS WEEKAHEAD-Investors split on Qatar stocks view

Published 12/08/2010, 09:46 AM
Updated 12/08/2010, 09:48 AM

By Matt Smith

DUBAI, Dec 8 (Reuters) - Qatar's successful bid to host the 2022 soccer World Cup sent local stocks soaring to two-year highs this week as investors bet on a $100 billion construction boom, but the FIFA vote could be a signal to sell Doha shares.

Qatar was chosen to host the tournament in a landslide victory last week, overcoming concerns about summer temperatures that can top 50 degrees Celsius to beat rival bidders the United States and Australia.

The Gulf Arab nation is slated to spend $3 billion on 12 stadiums alone, while over the next five years it will also build a $25 billion rail network, a new airport costing $11 billion, and a $5.5 billion deep water seaport.

It will spend an additional $20 billion on new roads, while the World Cup triumph should also speed up work on the $3 billion, 40 kilometre, Qatar-Bahrain Causeway.

Doha's index <.QSI> climbed 3.6 percent on Sunday, its biggest rise for seven months and the highest close since October 2008, as volumes hit an 18-month peak, and it has extended gains in the following days.

The index is up 26 percent in 2010, dwarfing gains on other Middle East benchmarks, but many analysts say Qatar stocks remain attractive.

"Qatar's market has done very well in the last year, but there's still an anomaly in that it has cheaper valuations than many emerging markets despite its very high economic growth," said Shakeel Sarwar, head of asset management at Securities & Investment Co (SICO) in Bahrain.

Qatar's economy is forecast to grow 15.5 percent this year, according to a Reuters poll. [GULFPOLL1]

"A lot of institutional and fundamental-oriented managers believe there will be a convergence in valuations between Qatar and emerging markets," Sarwar said, adding that a World Cup-inspired rally would help achieve that.

Beneficiaries of increased economic activity as a result of the soccer vote are likely to include banks and construction sector firms such as steel producer Industries Qatar , Qatar National Cement and Barwa Real Estate .

Yet amid the euphoria, there are dissenting voices.

"Only in the stock market can you have a significant reaction to an event that is 12 years from now," said Akram Annous, MENA strategist at Al Mal Capital.

"Buying Qatar equities because you think this bid will lead to $100 billion in infrastructure and MSCI [emerging markets index] status is probably not the best trade idea."

Qatar is under review by index provider MSCI for upgrade from frontier to emerging markets status, which would give it access to a wider range of investors.

Annous points to a pre-World Cup rally as a reason to get out of Doha shares.

"Investors should have been buying two months ago when oil was $75 and Saudi and Qatar industrial names were the big underperformers," said Annous.

"Now is not the time to become a long-term investor in these names. The World Cup news is a great opportunity to sell."

With Qatar's bourse possibly becoming overheated, investors may turn to underperforming regional markets such as those in the United Arab Emirates.

Dubai's index <.DFMGI> is down 73 percent from a 2008 peak, seeing little or no recovery as other emerging markets rallied hard from early 2009. But Qatar's World Cup triumph could yet boost the emirate's stocks, and not only those seen as a regional construction play.

"Dubai stands to benefit from any pickup in business activity in the region on the back of the Qatar win, as it's the location with restaurants, clubs, malls, hotels, water parks, ski slopes and physical and social infrastructure in place," added Annous. "Dubai's market is also cheap compared to the rest of the Gulf."

Dubai builder Arabtec has won a series of projects in Qatar this year and investors have bet the firm will enjoy a World Cup windfall. The stock surged 9.1 percent in its biggest rise in eight months on Monday, the first day's trade in the United Arab Emirates following a four-day holiday.

Contractor Drake & Scull (DSI) climbed 6.5 percent to a 12-month high, with both stocks gaining further on Tuesday.

In Egypt, investors will be watching for signs of what the ruling National Democratic Party (NDP) will do after its crushing victory over the opposition in the country's parliamentary elections.

Egypt's two main opposition blocs withdrew from the second round of voting, claiming fraud and dirty tricks. The government and the NDP said the vote was open and fair.

"They (investors) thought that if the NDP is taking the majority, that's fine, that's stable, but to go into an election and just get all the votes -- it's not quite sure what they aim for," said Youssef Kamal of Naeem Brokerage.

Orascom Telecom (OT) remains on investors' radar as they await a $6.6 billion deal for Russian operator Vimpelcom to buy parent company Weather Investments, which appears threatened by concerns from major Vimpelcom shareholder Telenor. Vimpelcom says the deal is progressing as planned, but sources told Reuters the deal was more likely to collapse. (Additional reporting by Alexander Dziadosz in Cairo; Editing by Catherine Evans)

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