DUBAI: Qatar's main share index surged to a record close on Sunday as investors targeted stocks that will be included in MSCI's emerging market index, while Egypt hit a 69-month peak before this week's presidential vote.
MSCI will upgrade Qatar, along with the United Arab Emirates, from frontier market status at the end of this week, adding 10 Doha-listed stocks to its emerging market benchmark.
Masraf Al Rayan will be Qatar's lead stock in the index, accounting for about a quarter of the country's weighting; the Islamic lender's shares jumped 10 percent on Sunday to its daily limit-high.
Industries Qatar and Qatar Electricity and Water, which MSCI will also add to its emerging market index, climbed 3.8 and 3.5 percent respectively.
"The performance so far this year has been driven by retail and institutional investors, with some index trackers already coming in, and that will continue for the next one to two weeks," said Robert Pramberger, acting head of asset management at Doha-based investment company The First Investor.
UAE markets were closed for a national holiday on Sunday, making Qatar the focus of regional investors' attention, Pramberger added.
Doha's index rose 2.6 percent in active trade to an all-time high of 13,351 points, taking its 2014 gains to 28.6 percent; it closed at the day's highest level. The move was technically bullish because it broke resistance on the previous record intra-day high of 13,196 points, hit earlier in May.
"Q1 results were in line with expectations, but it's also about the outlook - Qatar has a lot of infrastructure spending," said Pramberger, citing state-led road, rail, hotel and property projects ahead of the country hosting the 2022 soccer World Cup.
"This is getting priced in - oil and gas money is flowing back into the country through infrastructure."
Qatar's stock market has provided much better returns than other asset classes, including bank deposits, real estate and fixed income, Pramberger noted, which has further reinforced positive investor sentiment towards local equities.
Yet stocks often underperform after an MSCI upgrade actually takes effect, according to Credit Suisse, which examined how other countries reclassified by the index compiler fared.
"The scale and rate of underperformance was near identical across all the markets, which gives me conviction that the pattern of 'buy the rumour, sell the news' is pretty powerful," said Fahd Iqbal, head of Middle East research at Credit Suisse.
"There's more downside risk left in the UAE and Qatar."
Mid-cap stocks helped Cairo's main share index climb 0.4 percent to its highest close since August 2008.
Arabian Cement, which completed Egypt's first major initial public offer since the 2011 revolution, rose 4.6 percent to stand up 22 percent since its May 18 debut.
The company traded about a quarter of its free float in its first few trading sessions, said Mohamed Radwan, head of equities at Pharos Securities in Cairo. Sellers used much of their proceeds to buy other Egyptian stocks.
"We've seen fresh funding coming into the market. We think the positive attitude of investors will continue this week."
Egyptians go to the polls on May 26-27 to elect a president, with former army chief Abdel Fattah al-Sisi widely expected to win. "If the election goes smoothly without any major violence it will smooth the way for decent gains in the market," said Radwan.
Meanwhile Saudi Arabia's index rose 0.2 percent to 9,772 points, coming within 0.5 percent of May 14's six-year closing high of 9,820.
"There are good long-term drivers and valuations are not particularly expensive as a whole, but 10,000 is a key resistance and I think it will be difficult to sustain a material rise above this level," said Iqbal.
"Earnings were not that impressive, but the second half should be better. For banks, we're waiting for interest margins to expand, but that's a story for 2015, not this year, and will only happen when U.S. base rates rise.
"Until then, Saudi banks still have pretty decent loan growth and provisions are at normal levels." (Reuters)