MIDEAST STOCKS: Oil's Retreat May End Gulf Rally

A rally on Gulf stock markets, which was already running out of steam on Sunday, may end on Monday after oil prices pulled back again and Chinese stocks dropped.

Brent crude has fallen 1.8 percent to $49.16 per barrel in Asian trade on Monday morning as market players take profits after last week's rebound, which saw oil's biggest two-day jump in six years.

Oil's bounce fuelled strong gains across Middle East equities last week, but on Sunday local bourses closed well off their highs and some even edged lower in shrinking turnover.

Analysts say stock markets are likely to remain jittery until oil prices show convincing signs of establishing a long-term floor, and may take some time to consolidate afterwards. In the meantime, many investors may choose to stay on the sidelines.

"In this environment, stock picking is probably not a very smart move," said Shakeel Sarwar, head of asset management at Securities & Investment Co (SICO) in Bahrain.

In Qatar, however, passively-managed emerging market funds are likely to buy shares in Ezdan Holding and Commercial Bank of Qatar before a quarterly MSCI index adjustment takes effect on Sept. 1.

MSCI has nearly doubled the weighting of CBQ in its emerging markets benchmark and added 20 percent to Ezdan's weighting. Those increases could drive $16 million of passive fund inflows into CBQ and $8 million into Ezdan, VTB Capital has estimated.

On global markets, Asian equities have fallen on Monday, led by China, where the Shanghai stock index has dropped 3.4 percent.

A monthly Reuters survey of leading Middle Eastern fund managers, published on Monday, showed them moderately positive on regional equities, a positive shift from their bearish stance in the previous survey at the end of July. However, they are still not very bullish by historical standards.

Reporting by Olzhas Auyezov