Kuwait Finance House hit a two year high on Monday as some traders bet the Islamic lender may announce a capital increase priced at a big discount to its current share price and other local banks also advanced.
KFH rose 1.6 percent to its highest close since Dec 24, 2008.
"Many people expect KFH to make a capital increase and that this will be cheap," said Essa al Hassawi, assistant manager at Zumorroda Investment Co in Kuwait.
He said market talk was for a KFH capital increase to be priced at 0.4 to 0.5 dinars per share.
In February, KFH said it was not considering a capital increase "for the time being", while in October, rival National Bank of Kuwait completed a 10 percent rights issue that was priced at 0.500 dinar per share.
At the time, NBK stock was trading around 1.500 dinar, so local banks have a precedent for steep discounts on rights issues, even allowing for subsequent dilution.
Other banks also prospered. NBK climbed 1.4 percent and Gulf Bank added 1.8 percent.
"People are positive on the banking sector because they think provisions will go down and boost earnings in 2011 - most banks took good coverage for NPLs [non-performing loans] in 2010," added Hassawi.
In Doha, Commercial Bank of Qatar (CBQ) rose 1.7 percent, despite reporting below-forecast fourth-quarter earnings, with the stock seen as cheap compared to market leader Qatar National Bank.
"Net income was a bit weak and fee income was disappointing as well, but the dividend was good and asset quality improved, so valuations are still attractive," said a Doha-based analyst who asked not to be identified.
Commercial is trading at a price-to-earnings ratio of 11.9, according to Reuters data, while QNB has a p-e of 13.7. The latter edged up 0.2 percent.
Abu Dhabi's Aldar Properties fell 3.5 percent, equalling Sunday's five-year low and further declines are forecast to reflect the company's restructuring plan, which is seen as detrimental to equity holders.
"I don't foresee a turnaround in UAE property prices in 2011 -- more supply, absence of encouraging mortgages and the shortcomings of the existing visa law mean higher vacancy rates and further declines in asset values," said Roy Cherry, SHUAA Capital senior vice-president for research.
He said Aldar remained expensive compared to Dubai rival Emaar Properties, despite its shares dropping 15 percent unveiling its restructuring plan on Jan 13.
Abu Dhabi's index fell 0.3 percent to a 16-week low.
In Dubai, contractor Drake & Scull climbed 4.6 percent after it won a $126.6 million contract in Egypt. Nomura upgraded Drake to "buy" from "neutral".
Emaar rose 2.1 percent and builder Arabtec added 2.8 percent.
"UAE contractors' earnings should improve in 2011 after they successfully diversified across the region," added SHUAA's Cherry. "Emaar's attractiveness will rely on the strong and sustainable cash flows from its investment properties." UAE contractors' earnings should improve in 2011 after “they successfully diversified across the region”, added SHUAA's Cherry. "Emaar's attractiveness will rely on the strong and sustainable cash flows from its investment properties."
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