Dubai Stocks Enter Bear Market as Mideast Equities Slump on Oil

  • Egypt stocks drop amid concern tourism to suffer after crash
  • Abu Dhabi valuations slump as trading volumes languish

Dubai stocks dropped into a bear market, leading declines across most Middle Eastern equity markets, after Friday’s U.S. labor report increased expectations that the Federal Reserve will lift interest rates this year, pushing Brent crude lower.

The DFM General Index slid 3 percent to 3,347.23, the lowest level since December and the biggest drop in more than two months. The gauge has fallen more than 20 percent since a peak in April. Saudi Arabia’s Tadawul All Share Index lost 0.6 percent, closing at the lowest level since January 2013.

“When you see an aggressive drop in oil price, it puts people on edge,” said Ahmed Shehada, the Dubai-based executive director for advisory and institutions at NBAD Securities LLC, a unit of the U.A.E.’s biggest bank. “In addition, there are the banks’ results. A lot of operating income has dropped and this is having” an effect across the board, he said.

The U.S. added 271,000 non-farm jobs in October, surpassing the 185,000 predicted in a Bloomberg survey of economists, while the unemployment rate fell to a seven-year low. The report sparked a dollar rally that led to the drop in Brent and boosted expectations of an interest rate move by the Fed to 68 percent, data compiled by Bloomberg shows. Monetary policies in the region are influenced by Fed decisions.

Dubai Volumes

Brent crude, a pricing benchmark for half the world’s oil, closed 1.2 percent lower on Friday at $47.42 a barrel. The six-nation Gulf Cooperation Council is home to about 30 percent of the world’s proven oil reserves and most governments rely on income from crude to fund spending.

In Dubai, Emaar Properties PJSC, the real estate developer with the largest weighting on the DFM General Index, led the declines with a 4.7 percent retreat. Air Arabia PJSC fell the most in almost eight months after the company’s third-quarter profit dropped 6 percent.

About 176 million shares traded in the emirate, compared with a one-year daily average of about 421 million, according to data compiled by Bloomberg.

Saudi Banks Cut

Chemical and steel manufacturer Saudi Basic Industries Corp. and Al Rajhi Bank, which holds the biggest weighting on Saudi Arabia’s gauge, led the retreat in the kingdom. Standard & Poor’s cut the credit ratings of the eight Saudi Arabian banks that it covers last week, citing increased risks to the kingdom’s economy because of lower crude revenue.

“Most foreign institutional investors are more inclined to sell banks because they have an external view of the market,” said Muhammad Shabbir, who manages about $550 million as the head of regional equities at Rasmala Investment Bank Ltd. in Dubai. “We’re already a bit underweight on Saudi now, but the market has the capacity to bounce back, particularly toward the end of year when many companies pay dividends.”

Flight Suspensions

Egypt’s benchmark EGX 30 Index dropped 2.6 percent, the most in two months. The theory that a bomb took down a plane full of Russian passengers last month gained traction over the weekend, threatening tourism in the most populous Arab nation. Income from foreign visitors is a pivotal part of President Abdel-Fattah El-Sisi’s plan for economic recovery.

“The flight suspensions by Britain and Russia in the wake of the crash are having a real impact on the market, because those are two of the biggest groups of tourists and sources for hard currency in Egypt,” said Sherif Shebl, an equities trader at Cairo-based Pharos Holding. “The pound is already under pressure, and this adds to the negative sentiment for investors who already anticipate a devaluation.”

Egypt, which relies on tourism as one of main sources of foreign reserves, is suffering from a dollar shortage that has forced the central bank to devalue the pound by 11 percent this year.

The currency still trades at a discount of more than 6 percent in the black market, and 11 percent according to the differences in prices of stocks traded locally and abroad. The pound was little changed at 8.0301 per dollar in the interbank market after the regulator maintained its peg at a foreign exchange sale Sunday.

Taqa Slides

Abu Dhabi’s ADX General Index fell 1.6 percent, the most in two months. Abu Dhabi National Energy Co., known as Taqa, dropped 2.1 percent after it said it will cut 100 jobs from its offshore oil operations.

Abu Dhabi Stocks Cheaper Relative to MSCI Frontier Markets
Abu Dhabi Stocks Cheaper Relative to MSCI Frontier Markets

The emirate’s stock index, which is classed as an emerging market by index provider MSCI Inc., is now trading cheaper than a measure of frontier markets based on its price relative to future earnings. About 45 million shares changed hands, about one third of the one-year daily average. Volumes haven’t surpassed the average in more than a month.

The Qatari QE Index slid a ninth day, falling 1.9 percent to the lowest in two months. The gauge extended its longest losing streak since 2009. Traded volume was less than half the 12-month daily average.

Israel Slips

Measures in Bahrain and Jordan retreated 0.3 percent and 0.2 percent respectively, and Oman’s MSM 30 Index fell 0.1 percent. Kuwait’s SE Price Index bucked the trend, rising 0.1 percent.

Israel’s TA-25 Index fell 0.7 percent, after rising as much as 0.5 percent in earlier trading. Israel Chemicals led the gauge lower as legislators approved a tax levy on natural resources.

Six Israelis were wounded and one Palestinian was killed in 3 separate car-ramming and stabbing attacks in the West Bank, according to Israeli police spokeswoman Luba Samri. The country has been gripped with near-daily violent attacks and deadly countermeasures by security forces since the beginning of October.

Stocks declined “not that dramatically, because of today’s attacks and the lack of security and uncertainty of where this will go,” said Ilanit Sherf, head of research at Psagot Investment House Ltd.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE