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Kuwait seen rising but gains may be fleeting

About half of Kuwait's $104 billion development is likely to be financed via state-backed loans from banks.

September 14, 2010 8:40 by

Saudi Arabia and Kuwait bourses are seen opening higher on Tuesday, tracking regional and global gains in the pair’s first day’s trading following the Eid al-Fitr holidays, but Kuwait’s rise may prove short-lived.

“A lot of retail investors cashed out ahead of Eid because they had been burnt over previously holidays and so didn’t want to take the risk,” says a Kuwait trader who asked not to be identified.

“But over this break, oil has done significantly well, Dubai World’s restructuring has come through and it looks like the mechanism by which banks will fund Kuwait’s development plan is in the final stages of being agreed.”

About half of Kuwait’s 30 billion dinar ($104 billion) development is likely to be financed via state-backed loans from banks and the prospect of risk-free profits has sent lenders’ shares soaring over the past month or so.

“Kuwait should open in the green as retail investors try to get back in and among banks, I would recommend buying the small- to mid-cap names because the large cap banks have already incorporated all the good news,” says the trader.

Yet Kuwait’s index faces strong resistance around 6,750 points.

“This will be third time the index will try to break above this level, so I would be fearful because PE ratios have gone through the roof and some banks are overbought,” adds the trader.

Monday’s world stock gains were powered by robust data from China and relief new global banking rules would not require a rush to find billions of dollars of extra capital.

The strength of the link between Middle East and world markets is open to debate, but risk appetite seems contagious and so with investors across the globe seemingly feeling braver of late, the expectations are for more regional gains in the medium term.

Dubai’s index rose 2.4 percent to 1,631 points yesterday, hitting a 16-week high and taking its September gains to 9.9 percent.

“I’m still positive about the market, but we could see some profit taking come in the next couple of days to take Dubai back towards the 1,570 level,” says Musa Haddad, head of MENA equity desk at National Bank of Abu Dhabi.

(Reporting by Matt Smith; Editing by Dinesh Nair)

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