DUBAI: Qatar stocks are poised to rise in the next week as traders buy in ahead of expected bumper earnings from blue-chip companies, which are benefiting from the gas-exporting economy's buoyant performance. Saudi Arabian banks and consumer stocks are also likely targets for investors as they seek to tap into rising domestic demand in the kingdom, whereas UAE markets will remain weak, with quarterly earnings forecasts unlikely to entice absent traders to return. Qatar National Bank's (QNB) stock picked up on Wednesday after tumbling 5.2 percent on Tuesday, its biggest one-day fall since late 2009, reflecting investor disappointment in a proposed 40 percent cash dividend, despite a 40 percent surge in fourth-quarter profit. Retail investors dominate trade in the stock and the plunge in price was seen as a knee-jerk reaction as the dividend offer appeared to be lower than last year's. Yet when calculated on an adjusted dividend per share basis — the standard used by analysts — this year's dividend is actually higher and brokers expect the stock to head back towards this month's record high as institutions use Tuesday's sell-off as an opportunity to buy. QNB rebounded 1.7 percent on Wednesday to 147.50 riyals, approaching the Jan. 5 record high of 155.90 riyals. "The stock is still undervalued and I think it will pass 150 riyals ($41.20) soon," said a Doha trader, who declined to be identified. Qatar's benchmark stock index was the top Gulf performer in 2011, and though it has dipped 0.8 percent since the start of this year, ending at 8,710.9 on Wednesday, traders predict it will recover soon. "Expectations of higher dividends will help to push the index through the next resistance at 8,900," said Samer Al-Jaouni, General Manager of Middle East Financial Brokerage Co. Analysts forecast other Qatar lenders should match QNB's bullish profit growth. Commercial Bank of Qatar (CBQ), Qatar's number three lender by market value, is set to post a 44 percent jump in fourth-quarter profit on Jan. 25, according to analysts polled by Reuters, while profits at its smaller rival Doha Bank could surge 68 percent. Qatar Islamic Bank will underperform, however, with analysts predicting its profit will shrink. "We're very bullish on Qatar banks, especially QNB, which is government-backed and offers a direct play on the country's growth story," said Shahid Hameed, head of asset management for the Gulf region at Global Investment House. "QNB gets the lion's share of public sector business and the Qatar economy is driven by the public sector — the private sector is relatively small. We also like CBQ and Doha Bank." Qatar's economy will cool down in 2012 — economists predict growth in gross domestic product of 6.2 percent compared to an estimated 17.5 percent last year as the euro zone's woes and signs of slowing growth in China take their toll. Growth, however, should still dwarf that of its Gulf neighbors, with only Saudi Arabia a serious rival for Western institutional money, and fund managers forecast the Riyadh and Doha bourses will outperform in 2012. "Saudi Arabia is the most vibrant Gulf market and dominates in terms of turnover and capitalization," said Global's Hameed. "With oil above $100, the macro picture looks good. Demographically, Saudi has a large, young population that will underpin many sectors. Valuations are also not at a premium." Saudi Arabia increased its expenditure to record levels last year in response to uprisings across the Arab world and it plans to spend 690 billion riyals ($184 billion) in 2012, up from 580 billion riyals originally envisaged for 2011 but well below this year's actual spending of 804 billion. "The main theme in Saudi Arabia is the massive state infrastructure spending, which we play through cement and real estate stocks as well as banks, which should see their profitability increase in the medium term," added Hameed. "Consumer-driven stocks are another good play." Traders' consumer favorites include retailer Fawaz Abdulaziz Alhokair Co, up 43 percent over the past 12 months, and bookseller Jarir Marketing Co, up 36 percent over the same period. For equities in the United Arab Emirates, the outlook remains gloomy, with little sign of a turnaround on the beleaguered Dubai and Abu Dhabi bourses. Both markets have slumped to multi-year lows in recent weeks, while turnover last year was barely a tenth of 2008 as investors stayed away. Real estate dominates the two bourses, either directly through developers such as Aldar Properties and Emaar Properties, or indirectly, with banks historically deriving much of their lending income from consumers and corporates involved in the sector. Property prices have sunk more than 50 percent from 2008 peaks and more declines are forecast, while a dearth of energy, tourism or hospitality stocks means the markets offer little exposure to the UAE economy, which is forecast to expand 3.1 percent in 2012. These property woes have left banks languishing in the doldrums and their non-performing loan ratios are much higher than those of their Saudi and Qatar rivals. Fourth-quarter profit at Emirates NBD, Dubai's largest listed lender, is forecast to skid 58 percent, while National Bank of Abu Dhabi, will tread water, with analysts estimating quarterly profit growth of just 3.4 percent. "We've been well flagged to expect that UAE bank earnings will not be particularly positive," said Raj Madha, MENA banking analyst at UAE-based investment bank Rasmala. "We are looking for two things as signs that things are getting better for banks: growth to resume and a turnaround in the provision cycle, but the banks aren't yet signaling that either is imminent. "There isn't a huge amount of optimism that things changed significantly for the better in Q4, but Q4 earnings will provide more visibility on balance sheet quality."
