U.A.E. Stocks Lead Gulf Equity Slump as Bank Profits Decline

  • Abu Dhabi index extends drop after most lenders' earnings fall
  • Israeli stocks slide, led by pharmaceutical companies

Equity markets in the United Arab Emirates extended declines on speculation recent gains were overdone after earnings fell at some of the country’s biggest banks.

Abu Dhabi’s ADX General Index slipped for a second day, dropping 0.8 percent to 4,506.14 at the close, the lowest level in more than two weeks. First Gulf Bank PJSC, the emirate’s third-largest lender by assets, was the biggest contributor to the gauge’s retreat after last week reporting a 6 percent decline in first-quarter profit. Abu Dhabi Commercial Bank PJSC, which said Wednesday its profit fell 18 percent, slipped a second day. Dubai’s DFM General Index lost 1.3 percent.

Abu Dhabi shares traded at almost 12-times future earnings last week, the most since 2014.
Abu Dhabi shares traded at almost 12-times future earnings last week, the most since 2014.

Most publicly-traded banks in Abu Dhabi posted declines in first-quarter profits as the fallout from low oil prices continues to weigh on earnings. The financial results served as a reminder to investors that while crude, the main source of income for the six-nation Gulf Cooperation Council, has rebounded from a 2003-low in January, it remains 50 percent below its level two years ago. Rising oil prices helped push stock gauges in U.A.E., Qatar and Saudi Arabia into bull markets.

“The U.A.E. markets have been on a steady rally from its low back in mid-January, primarily on speculation,” said Ahmed Shehada, the executive director of advisory and institutions at NBAD Securities LLC. “With the volatility in oil and first-quarter results, it’s no surprise that the market is starting to lose steam.” U.A.E. shares are no longer considered cheap, he said.

Abu Dhabi shares traded at almost 12-times future earnings on Thursday, the most since December 2014. Companies on Dubai’s gauge were last week trading at about 10-times expected earnings, near the highest in four months.

U.A.E. Volumes

First Gulf Bank slid 1.5 percent, the most in a month, and Abu Dhabi Commercial Bank dropped 2.3 percent. Union National Bank PJSC fell 0.6 percent after reporting a 27 percent decline in first-quarter profit on Thursday.

Trading volumes were depressed, with about 184 million shares changing hands on the DFM General Index, 58 percent below the 20-day average. Trading on Abu Dhabi’s main gauge was less than half the average.

Qatar’s QE Index closed little changed. Aamal Co. climbed 4.4 percent after posting a 25 percent jump in first-quarter earnings. Qatar National Bank SAQ, which last week tapped the debt market and raised $1.1 billion, slipped 0.4 percent.

Kuwait’s SE Price Index rose 0.2 percent and Oman’s MSM 30 Index added 0.1 percent. Markets in Bahrain and Egypt were closed for public holidays.

Saudi Maaden

Saudi Arabia’s Tadawul All Share Index lost 0.8 percent, even as Saudi Arabian Mining Co. surged 9.9 percent, the most in five years.

Investors are speculating the company known as Maaden will become more profitable as the kingdom seeks to diversify its economy away from oil. The Saudi Public Investment Fund replaced its representatives on the board and named Aramco’s Khalid Al-Falih as chairman.

“Mining and minerals was one of the industries mentioned in the Vision 2030 as a sector that the government is going to invest in,” said Mohammed Alsuwayed, the Riyadh-based head of capital and money markets at Adeem Capital. “Khalid Al-Falih is a member of the Public Investment Fund board, and so that means they’re probably going to restructure the company to make it more profitable.”

The investment fund is a key part of Saudi Arabia’s blueprint for the post-oil era, which Deputy Crown Prince Mohammed bin Salman announced last week. Under the plan, the kingdom will sell less than 5 percent of Saudi Arabian Oil Co. in an initial public offering and transfer the company’s ownership to the PIF, making it the world’s largest sovereign wealth fund.

The kingdom has successfully slowed a decline in net foreign assets held by the Saudi Arabian Monetary Agency, data released Thursday show. They fell 1 percent in March to $579 billion, the slowest pace of decline since July, indicating that the drain on currency reserves that began in 2014 is moderating as oil prices recover and the country cuts spending.

Israel Losing Streak

Israel’s TA-25 Index slipped 1.7 percent at the close in Tel Aviv, the biggest four-day drop since October and the longest losing streak in almost a month. The gauge’s 14-day relative strength index slipped to 30. A reading below 30 suggests to some investors that a security is oversold and may reverse.

Twenty-two companies retreated, with drugmakers Mylan NV, Teva Pharmaceutical Industries Ltd. and Perrigo Co. leading the drop. Short sellers are convinced bad news at Perrigo isn’t over after the company said Chief Executive Officer Joe Papa was ending his 10-year tenure to take the helm of troubled Valeant Pharmaceuticals International Inc.

“The pharma sector, led by weakness in the U.S., continues to be a drag on the local market, contributing more than 1 percent of the drop,” said Saar Golan, a Tel Aviv-based trader at Bank of Jerusalem Ltd. “The weight of the sector in the index will continue to be a major driver for the direction of the market.”

Mylan tumbled 7.3 percent to 155.70 shekels ($41.67), the lowest level on record, after its U.S.-traded shares closed at $41.71 on Friday. Teva lost 4.3 percent to 201 shekels, the lowest since October 2014. Perrigo dropped 3.4 percent to 360.90 shekels, the lowest level since 2012.

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