DUBAI, June 13 (Reuters) - Egypt returns to the polls this
weekend to choose a new president and a peaceful vote will
likely boost Cairo's stocks if investors are convinced this will
lead to a smooth transition to civilian rule.
The vote on June 16-17 will decide who replaces Hosni
Mubarak, the country's leader for three decades who was
overthrown in February last year in a popular uprising. Army
generals have led the country since then.
Law-and-order candidate Ahmed Shafik is vying against
Mohamed Mursi of the Muslim Brotherhood, a socially conservative
movement with a strong grass roots following.
A tendency among investors to favour continuity over change
may mean a bigger boost to the stock market if Shafik - the last
prime minister of ousted President Hosni Mubarak - wins against
the untried Mursi.
"If Shafik wins, it would be even more positive for the
economy, though it might cause turbulence in the street at
first," said Ahmed Abu Taleb of Pharos brokerage.
"If Mursi wins, it is still positive to have a president as
this is the step we have waited for, but it would be negative
from an economic point of view."
He said investors were concerned Mursi would turn the
country into "an Islamic nation with only one wing in control".
Trading volumes on Egypt's Exchange have dwindled since
early March when the benchmark index reached a 2012
high.
Egypt notched up the world's best equity performance between
January and early March. The surge came after a new parliament
was sworn in, raising hopes that the new legislature would force
an end to policy paralysis that has prolonged an economic crisis
sparked by Mubarak's overthrow.
That optimism quickly dimmed because of hostility between
the Islamist-led parliament and the army-backed cabinet, with
the main index slumping to a 20-week low on Monday and lingering
obstacles to the formation of a coherent government will likely
keep trading muted until after the vote, said Abu Taleb.
On Thursday, Egypt's supreme court is due to look into
whether the laws under which parliament was elected are
constitutional. A negative ruling could mean the legislature is
dissolved just two days before the presidential vote.
The supreme court will also look at a law passed by
parliament that would bar Shafik from running for president.
"The current situation on the market is about a lot more
than the elections," said Abu Taleb.
Elsewhere, Gulf Arab markets will remain in the doldrums,
with traders offering little hope of them sparking into life
unless there is a sudden turnaround in global sentiment, which
has dictated direction on regional bourses in recent weeks.
With world stocks volatile, Gulf bourses have been in
retreat - Qatar slumped to eight-month low this week,
while Saudi Arabia, Kuwait, Dubai and
Abu Dhabi have returned to early-February levels and more
declines are forecast.
Qatar's drop may surprise many, with the country's economy
forecast to grow 6.6 percent in 2012, having expanded an
estimated 17.5 percent last year, while the prospect of mega
state infrastructure spending ahead of hosting the 2022 soccer
World Cup had spurred long-term investors to buy into bank,
cement and real estate stocks.
Yet the tournament remains a decade away and foreign
institutions, formerly long-term stock holders, have cut
positions, with the market in some ways a victim of its own
success - its regional outperformance in 2010 and 2011 means
these funds still have some profits to book despite the recent
slump. Selling has increased since banks paid out what traders
described as generous annual dividends.
"Foreign investors are still selling Qatar stocks," said
Samer al-Jaouni, General Manager of Middle East Financial
Brokerage Co in Dubai.
The correlation with global markets is partly due to a lack
of regional company or macroeconomic news and investors hoping
second-quarter earnings could refocus attention closer to home
are likely to be disappointed.
"I doubt Q2 results will have much effect on trading," said
Jaouni. "The latest correction means there are some attractive
valuations in the market, but fundamentals are not really the
key point because the main players in the market are small
individual traders."
These typically opt for short-term speculation in the most
liquid stocks, making markets volatile and unable to mount a
sustained rebound.
Dwindling foreign interest may partly explain the trading
slump on Gulf bourses, but regional institutions are also
snubbing equities, instead opting to invest in fixed income.
"The yields they are getting from government bonds and sukuk
compared with the risk involved is something institutions are
really focusing on," added Jaouni.
"We need to see local institutions pump money into equities
otherwise prices will not increase, even if valuations are
attractive right now."
(Reporting by Matt Smith in Dubai and Tom Pfeiffer in Cairo;
editing by)