* Dubai and Saudi Arabia losing momentum for now * Qatar index stages bullish technical breakout * Valuations in Qatar inexpensive * Egypt depressed by wrangling over constitution * But corporate news backdrop is positive By Nadia Saleem DUBAI, March 28 - Qatar's stock market is the worst-performing in the Gulf so far this year. But a surge in prices this week suggests it could now start to outperform the region, boosted by healthy corporate earnings, traders and analysts say. The Qatari market has been neglected during the regional bull run that began in January, because investors saw more value in markets such as beaten-down Dubai, up 24 percent this year, and Saudi Arabia, up 21 percent. By contrast, Qatar's main index has gained less than 0.1 percent in 2012. This pattern could be changing, however. Dubai has essentially moved sideways in the past three weeks while the Saudi Arabian index, while continuing to hit fresh highs, has seen its 14-day momentum - a measure of the strength of its uptrend - fall sharply since early March. Much of this year's gains in the United Arab Emirates and Saudi Arabia have been the result of retail money piling into small-capital stocks in search of short-term profits. This leaves the markets vulnerable to pull-backs; Dubai mortgage lender Tamweel, for example, more than doubled this year but is down 23 percent from its early March peak. If these markets falter, at least temporarily, Qatar may benefit as regional investors seek markets that have not already been driven up sharply. "Expect money to flow into Qatar for the next week or so to offset declines in other markets," said Amer Khan, fund manager at Shuaa Asset Management in Dubai. "At the end of the day, money will chase returns and I think the returns are there in Qatar. I would expect companies to trade at premiums because of the clarity on government spending." VALUATIONS Investors in Qatar were disappointed earlier this year by 2011 dividends, which were smaller than some had hoped. But the index hit an 11-week closing high on Wednesday, suggesting an increase in buying interest. Khan said stock valuations in Qatar were not expensive compared to regional markets. The Doha index is now trading at about 10 times projected 2012 earnings, according to Thomson Reuters data, against roughly eight times for Dubai and 13 for Saudi Arabia. Commercial Bank of Qatar is at 8.9 times this year's estimated earnings compared to a range of about 8-34 in the past nine years. Doha Bank is at 7.35 times compared to a range of 7-50. Industries Qatar is at 9.1 times; in recent years it has traded around 12-25. "Doha's attractive fundamentals remain unchanged and we expect it to get back in focus, particularly since the UAE's rally has paused and that of Saudi Arabia has peaked," said Sleiman Aboulhosn, assistant fund manager at Al Masah Capital. One damper on the market is delays in plans for lenders such as Doha Bank to launch brokerage arms, because restrictions by regulators have made the business less attractive than hoped. Several Qatari banks may delay or even halt plans to offer brokerage services, industry sources told Reuters last week. However, a technical breakout by the Qatar index this week suggests the index may rally regardless, some analysts said. The index, which closed Wednesday at 8,790 points, broke above a symmetrical triangle formed by this year's highs and lows; technical theory says this indicates an end to its consolidation and could ultimately point it up near its 2011 peak of 9,290. "Near-term resistance is at 8,797 (last month's peak), followed by 8,830.35 levels," said Bruce Powers, head of research and analysis at Trust Securities. "The index is now showing short-term signs of trending higher which could see the index get above each of those price levels. It then targets 8,910.21, the high of the one-year range." EGYPT A stand-off between Islamists and liberals over the drafting of Egypt's new constitution may dim investor appetite for Egyptian equities in the coming week, traders say. The index is up 38 percent from the end of last year but has trended lower in the past three weeks, partly because of continued uncertainty over the country's transition to democracy. Liberals and leftists wary that Islamists could dominate the drafting of a new constitution said on Tuesday that they would write their own. "We have a problem with the constitution," said Omar Ascar of Cairo Capital Securities. "Everyone is withdrawing and the Muslim Brotherhood still wants to proceed with a majority in this committee. We don't know what will happen." The political wrangling has drawn investor attention away from positive corporate news in recent days, including an increase in construction orders for index heavyweight Orascom Construction, and talks towards an alliance between investment bank EFG-Hermes and Qatar's QInvest. "Those talks have brought some relief in the market. They prove that people are still interested in this country," said Ascar. He said Egyptian equities were likely to keep ticking lower until the index, which traded on Wednesday around 5,000 points, reached 4,700 points, before rallying by around 15 percent. Reuters

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