SABIC hits two-week low as investors react to weak earnings

UPDATE 4: SABIC fell 3.4 percent to its lowest finish since July 7.
SABIC hits two-week low as investors react to weak earnings
MARKET FORCES: The Abu Dhabi bourse limits daily stock moves to 10 percent in either direction. (Getty Images)
By Reuters
Tue 20 Jul 2010 10:46 AM

Saudi Basic Industries Corp (SABIC) tumbled to a two-week low as investors belatedly reacted to the petrochemical producer's disappointing earnings, while a fresh downturn on global markets also hurt local sentiment.

SABIC fell 3.4 percent to its lowest finish since July 7. Late Sunday, the firm reported a quarterly profit below consensus forecasts and a slowing global economic recovery is seen as likely weighing on demand for its products, analysts said.

"Investors gave a delayed reaction to SABIC's results - we expected it to fall yesterday and when it ended flat we almost gave up trying to predict the market," said a Riyadh-based analyst who asked not be identified.

"SABIC's numbers weren't a disaster, but it's all about what to expect in the third and fourth quarters and I think with European markets falling today, people woke up to that."

Rabigh Refining and Petrochemical Co fell 2.4 percent and Yanbu National Petrochemical Co's (Yansab) lost 2.7 percent.

Saudi Arabia's index fell 1 percent to 6,069 points.

Worries about the US economic recovery and bank exposure to risky debt combined with disappointing earnings on Tuesday to snuff out a world short stock rally and reverse gains in the euro.

Aabar Investments extended gains after the firm confirms it will pay minority investors an improved price to buy back shares, boosting Abu Dhabi's index, although Aldar Properties slumped to a 16-month low.

Aabar climbed 9.9 percent to AED1.89, nearing the AED1.95 price it says it will pay minority investors, markedly below its book value. Abu Dhabi stocks can move a maximum 10 percent up or down.

Aldar fell 3.4 percent to its lowest close since March 23, 2009, with market talk its latest drop was sparked by a bank closing portfolio holders' margin positions, while the outlook for the developer is uncertain.

"We don't forecast Aldar handing over much property in Q2 and the costs and interest expenses of carrying so much debt is dropping the bottom line into negative territory," said Chet Riley, Nomura property analyst.

"Aldar has increased the leverage on its balance sheet in recent quarters, not deleveraged."

Nomura expects Aldar will make a loss of AED130m in the second quarter.

Abu Dhabi's index rose 0.4 percent to 2,543 points, its third straight gain.

Property-related stocks slid, dragging Dubai's benchmark 0.6 percent lower to 1,510 points, its second decline in three days.

Emaar Properties fell 0.9 percent, builder Arabtec dropped 1.1 percent and Deyaar lost 1.3 percent.

"UAE property stocks have been sold off and are starting to look attractive, but the problem is that there's no earnings predictability - it's a black box because project handovers are usually delayed, we don't know the default rate or the selling or construction prices," added Riley.

Some banks made minor gains to help Qatar's index end higher for a second day, although trade is slight with most investors expected to stay away until after Ramadan.

Qatar Islamic Bank climbed 0.6 percent, trimming its losses to 3.6 percent since it reported a declining second-quarter profit, while Commercial Bank of Qatar added 0.9 percent.

"Volumes are really low and banks results were mixed - nothing too inspiring, but nothing too disastrous either," said a Qatar analyst who spoke on condition of anonymity.

He said bank and financial sector earnings per share fell 9 percent year-on-year in the second-quarter, but rose 11 percent quarter-on-quarter, adding he places more importance on the latter figure.

"Most banks had provisions in Q2, which would explain the year-on-year EPS fall. Quarter-on-quarter there was a pick up in loans, mostly driven by Islamic or government-relating borrowing," he said.

Banks' performance for the rest of 2010 will largely depend on provisions. These should fall but the outlook remains uncertain, the analyst said, pushing investors to stay out of bank stocks for the time being.

The index rose 0.2 percent to 6,935 points.

Kuwait's Global Investment House rose 9.8 percent to a four-week high after saying it had won a Dubai court case against a UAE bank.

Kuwait volumes are concentrated on small cap stocks, indicating the presence of day traders who tend to speculate in these names in the hope of turning a quick profit.

Most bluechips rose. National Bank of Kuwait and Kuwait Finance House gained 1.7 and 2 percent respectively.

Kuwait's benchmark slipped 0.1 percent to 6,494 points.

Agility was the main drag, falling 6.2 percent, with the stock remaining volatile as investors await a conclusion to its US fraud case. Agility is up 38 percent since July 4's six-year low.

Oman's index slipped 0.05 percent to 6,223 points.

Lebanon's BLOM index fell 1.56 percent to close at 1,448 points. Real estate firm Solidere's A share ended down 3.71 percent, while its B share dropped 3.89 percent. (Reuters)

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