Dubai Shares Drop as Mideast Unrest Sparks Risk Aversion; Emaar, Zain Fall

Middle East shares slumped, sending Dubai’s benchmark stock index down the most this month, on concern political unrest in the region may spread.

Emaar Properties PJSC, builder of the world’s tallest skyscraper, dropped 4.7 percent. Dubai Islamic Bank PJSC, the United Arab Emirates’ biggest Shariah-compliant lender, fell the most since November. The DFM General Index retreated 3.7 percent, the most since Jan. 30, to 1,536.45 at the 2 p.m. close in Dubai. Kuwait’s gauge tumbled 2.5 percent, led by Mobile Telecommunications Co. as the company’s board rejected all purchase offers for its 25 percent stake in Zain Saudi Arabia.

Arab governments are cracking down on pro-democracy activists as uprisings that toppled leaders in Tunisia and Egypt spread to Libya, Algeria, Yemen and Bahrain. Prince Talal Bin Abdul Aziz, a member of Saudi Arabia’s royal family, said on Feb. 17 that the kingdom may see protests unless King Abdullah Bin Abdul Aziz introduces reforms, according to BBC Arabic TV.

“The spread of the geo-political tension into Bahrain is causing investors to be risk averse,” said Nabil Farhat, partner at Abu Dhabi-based Al Fajer Securities. “The risk of spreading is dependent on each country’s situation. If you have a country with high inflation, an autocratic regime, high unemployment and a big percentage of the population that is below the poverty level and young, then the risk is high.”

Credit Default Swaps

Bahraini protesters were considering the government’s offer of talks to resolve a conflict now in its seventh day as a Libyan opposition group warned of a “bloodbath” at the hands of security forces seeking to crack down on calls for political change sparked by Egypt and Tunisia.

Bahrain’s credit default swaps climbed 17 basis points to 304, the highest since July 2009 on Feb. 18, according to CMA prices in London. The cost of protecting Saudi Arabian debt against default for five years soared 12 basis points to 138, also the highest in 19 months. Swaps on Saudi Arabia are used as a measure of confidence in the country although they reference no debt. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Emaar dropped to 3.02 dirhams, the lowest since June 16. Dubai Islamic retreated 3.4 percent, the most since Nov. 7, to 2.25 dirhams.

Zain Slump

Mobile Telecommunications, Kuwait’s biggest phone operator known as Zain, slumped 7.3 percent, the most since June 9. Zain’s decision may thwart a bid by Emirates Telecommunications Corp., or Etisalat, to buy a 46 percent controlling stake in Zain. Zain’s chief operating officer, chief strategy & business development officer and an adviser to the chief operating officer resigned, the company said yesterday. Etisalat dropped 0.9 percent.

Qatar’s QE Index decreased 1.6 percent. Oman’s MSM30 Index fell 1.1 percent, Bahrain’s gauge dropped 0.2 percent and Abu Dhabi’s ADX General Index lost 1.9 percent. Saudi Arabia’s Tadawul All Share Index declined 0.8 percent. Shares in Egypt haven’t traded in more than three weeks.

In Israel, the TA-25 Index closed little changed at 1,335. The country’s benchmark Mimshal Shiklit government bond due January 2020 fell, pushing the yield on the 5 percent bond up 3 basis points to 5.06 percent.

To contact the reporter on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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