Too Early to Buy Turkish, Arab Shares

03/07/2011 10:04 am EST

Focus: GLOBAL

Eoin Treacy

Global Strategist, Fullermoney.com

The Middle East is paying the price for neglecting the needs of its people, and its stocks are not yet the bargains they could become, writes Eoin Treacy of Fullermoney.

Huge numbers of births are not the kind of statistics that simply slip by unnoticed. However, not all governments have had the forethought to plan for how such a massive increase in the population can be incorporated into the workforce.

China has aggressively tackled this issue through large-scale industrialization, urbanization, and clearly defining a path for poor rural dwellers to improve their lot. India has been slower to develop its infrastructure, but has successfully embarked on an aggressive growth trajectory to help expand the ranks of the middle class.

Much of the Middle East—particularly the countries with less oil and more people—have done a far-from-convincing job of providing for their young.

China demonstrates that democracy is not a precondition for successful long-term planning in this regard. However, democracies by their very nature are forced to provide for their voters. Administrations that do not cater for the needs of a large proportion of voters don't tend to last long.

The recent surge in food prices, coupled with high unemployment and the perception of a massive wealth gap between a privileged few and an impoverished majority, are all symptoms of this lack of planning and poor governance.

Closed in Cairo
The Egyptian stock market remains closed and the Tunisian market closed again recently. [The Tunis stock exchange reopened today and rallied more than 3%—Editor.]

The Dubai and Kuwaiti indices both hit new lows last week. The Bahrain and Jordan markets remain in medium-term downtrends. The Saudi Arabia, Abu Dhabi and Oman markets have pulled back sharply and look likely to extend their base formations.[Saudi stocks did rebound almost 12% over the last three sessions after losing almost 20% since February 15—Editor.]

Qatar has been a regional leader, but its index has also pulled back sharply to test the 200-day moving average and the upper side of the previous range. A clear upward dynamic will be required to indicate support in this area.

Stock market weakness in countries such as Saudi Arabia and the United Arab Emirates—which have no government debt and plenty of cash to spend on social-welfare programs—suggests a wider pattern of de-leveraging rather than a systemic threat to these countries at this stage. The heightened sense of anxiety is contributing to higher volatility.

Just as with any crisis, this one will provide investment opportunities. We are probably not there yet.

[In fact, fighting in Libya has the potential to do lasting damage to global growth, argues Jim Jubak. In an earlier column, he explained why the Middle East’s youthful populations present not only dangers, but an exciting opportunity—Editor.]

Trouble Brewing in Turkey
Turkey has been marketed as the gateway to the Middle East. The National 100 Index encountered resistance near 70,000 from October and pulled back to test the 200-day moving average by late December.

It broke below the moving average two weeks ago and below the psychological 60,000 this week.

Enough technical damage has now been sustained to indicate that a swift rally back to the highs is less likely. The index will need to demonstrate evidence that it has found support and that demand is returning at progressively higher levels to indicate renewed bullish interest.

However, it should also be noted that Turkey has done a considerably better job of catering for its growing population. Standards of governance have been improving, fiscal discipline is fairly robust, economic growth has been impressive, the currency remains stable, and rampant inflation has been brought under control.

High oil prices are a headwind and the regional backdrop is not favorable, but Turkey could be one of the better regional recovery candidates once this crisis subsides.

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