Sliding oil prices, leverage and sheer panic have exposed the fragility of Gulf equity markets just as they are becoming mainstream destinations for international investors.
In May, MSCI upgraded Qatar and the United Arab Emirates to emerging-market status, drawing billions of dollars of new money to them. Saudi Arabia will open its bourse to direct foreign investment next year, which could draw tens of billions of dollars in coming years.
But a plunge in the markets over recent weeks has wiped out roughly $150 billion of value since the end of October in the six wealthy oil-exporting nations of the Gulf Cooperation Council, underlining the risks in the region.
The trigger was the collapsing price of oil, which provides Gulf governments with the bulk of their revenues. Some investors fear state spending will now be cut, undermining corporate profits.
But the problems go beyond oil. Some investors, particularly in Dubai, used heavy leverage, including bank loans, to buy stocks on the way up; they are now selling the stocks to cover the debt. The UAE central bank is studying how to limit stock buying with bank loans in future.
Another issue is the dominance of retail investors. They account for over 90 percent of daily volume in Saudi Arabia, far more than the ratio in major markets elsewhere. Many focus on the short term rather than basing their decisions on long-term value, as institutional investors do. That can magnify moves.
The result has been to cripple the markets. Saudi Arabia’s market, the biggest in the region, has sunk 25 percent from its peak in September. Dubai is down 31 percent.
Although the declines have left many stocks competitively priced by global standards, few people are willing to call a bottom for the markets just yet.
“Values are not the problem. The problem is that negative momentum has started - some clients are panicked,” said Mohammed Ali Yasin, managing director of NBAD Securities, a top Abu Dhabi brokerage.
“What we need now is something to stabilize the markets until the panic selling is over. Until that happens, we may test new lows.”
نستخدم ملفات الكوكيز لنسهل عليك استخدام مواقعنا الإلكترونية ونكيف المحتوى والإعلانات وفقا لمتطلباتك واحتياجاتك الخاصة، لتوفير ميزات وسائل التواصل الاجتماعية ولتحليل حركة المرور لدينا...اعرف أكثر