Apr. 12--After ten straight months of losses, the broad MENA market equity index registered a gain of 7.5% over March. Regional markets recovered some of their poise after a horrific 12 months as a combination of global and regional factors led to some optimism that the worst of the global financial crisis may be behind us and a period of recovery, albeit it a slow one, may be in front. The G20 US$1.1 trillion economic stimulus plan will further boost sentiment in the short term at least. Regional markets traded in tandem with other global markets as key equity markets such as the US, Europe and Hong Kong gained 8.5%, 4.8% and 6%, respectively, with even stronger gains in key emerging markets such as China and Brazil. Equally importantly, economically sensitive commodities and currencies -- such as oil, copper, Australian and Canadian dollars -- also posted strong gains over the month as the improved sentiment encouraged some risk-taking by global investors. As correlations between global and regional markets have been high during the brutal sell-off of the past 12-18 months, one can expect that a similarly high correlation will persist during the much hoped for stabilization and recovery stage.

Regionally, the focus was very much on official measures confront the effects of the global financial crisis. Investors in the UAE were heartened by clear signs of support from the Emirate of Abu Dhabi for its Dubai neighbor in the form of a US$10 billion subscription as part of Dubai's recently launched US$20 billion bond program. This will go a long way towards meeting Dubai's 2009 debt repayment schedule and ease the burden on governmental and quasi-governmental corporations. The Emirate of Abu Dhabi has also launched a total of US$3 billion in bonds, which were well received by the market with strong demand and improving prices and which also had the effect of reducing the quoted Credit Default Swap (CDS) on Dubai to around 6% after they had reached 10% earlier in the year. The State of Qatar also launched sovereign bonds for a total of US$2 billion in five- and ten-year maturities. These bond programs should be viewed as attempts by cash-rich sovereign issuers to open up new areas of funding for public and private corporations as other funding sources close up or become prohibitively expensive.

Going forward, close attention will be paid to the release of first-quarter 2009 earnings after a disastrous fourth quarter of 2008 led to combined losses of US$5.7 billion in GCC-listed companies, compared with profits of US$13 billion over the same period in 2007. The worst losses were recorded by financial institutions and the real estate sector, while the telecommunications sector was relatively unscathed and has posted small increases in profits over the past year.

Gains across the region were fairly uniform, with the exception of Oman which lost close to 5% over the month. The largest market, Saudi Arabia, gained 7% as optimism about banking sector profits and an improved oil price boosted sentiment. UAE markets gained close to 7% as local and foreign selling eased amidst improving credit and interbank deposit markets and official support from Abu Dhabi. Qatari equities gained 10% as firmer oil prices and the government's plan to purchase the investment portfolios of banks boosted sentiment. The Kuwaiti market gained close to 5% despite lingering squabbles over the much-awaited economic stimulus plan. Outside the GCC, the Egyptian market gained close to 17% amidst improved emerging market sentiment and steadily falling interest rates in Egypt, giving a much-needed boost to domestic investment and spending.

Saudi Arabia The largest MENA market posted gains of 7.28% during March, reducing year-to-date losses to around 2%. The market started off on a very weak footing as dismal global economic news depressed sentiment, taking the market to close to the 4000 level before a strong rally in the second half of the month ensured a positive finish to March.