Stocks rebound from Saudi to Dubai as day of protest flops and Prince Alwaleed invests $130m

Persian Gulf stock markets rallied further on Sunday in the wake of the failure of protestors to emerge in any number for the planned Saudi day of anger on Friday. Prince Alwaleed’s bargain hunting at the end of last week increasingly looked a well timed investment.

The Saudi stock market rebounded most and is close to making up its entire recent 20 per cent correction. Stocks in Dubai moved up but still traded below levels seen at the lowest points of last summer. Abu Dhabi’s tiny Insurance House IPO only just managed to scape up enough subscribers. But Prince Alwaleed announced that he had snapped up $140 million in bargain stocks in Riyadh.

Super-quake

There are still plenty of headwinds that could drive Gulf equities back down next week. The Japanese earthquake on Friday sent shockwaves through the oil market with crude weakening for the first time in several weeks. Damaged oil refineries will not be importing crude and Japan is the largest oil importer in the world.

Moreover, global stock markets still look ripe for a correction after the celebration of a two-year rally last week. Japanese institutions are likely to turn net sellers as they repatriate funds for the reconstruction process and buy government debt. Gulf equities usually move with global markets so the downside risk is considerable at this stage.

Summer bottom

The ArabianMoney newsletter predicts that the best bargains will emerge in the depths of the hot summer in July and August, and cautions against purchases in advance of a global stock market correction that Dr Marc Faber has warned will hit emerging markets hardest (click here), and that was ahead of the 9.0 earthquake that smashed north-eastern Japan last Friday.

That said it is not very likely that Gulf stocks will go much lower. The Dubai Financial Market is trading on a forward price-to-earnings ratio of less than six and 0.6 per cent times book value, making it the cheapest stock market in the world.

A few headline deals on the Dubai debt and asset sales and the DFM might well start showing more signs of life. The signing of the $24.9 billion Dubai World debt rescheduling is promised for this Wednesday (click here) and a major sale of Dubai Aluminium equity to Abu Dhabi is coming up soon (click here). But then we noted Prince Alwaleed has not yet been tempted to buy in Dubai.