Bear-to-Bull Lurch Nothing New in Dubai Amid Record Stock Swings

In July, Dubai’s benchmark stock index jumped 21 percent in about two weeks, an advance that qualified it as a bull market. This month, after a brush with a bear market, it repeated the feat in two days.

The turnaround is testament to a market in which volatility is fueled by fluctuations in oil prices and attempts by banks and brokerages to offload stocks to pay back some borrowed money that was used to buy them, according to Abu Dhabi-based Nabil Rantisi, managing director of Mena Corp. Financial Services. Dubai’s DFM General Index soared 24 percent in the past two days, more than double the gain in stocks in Saudi Arabia, the world’s biggest oil exporter.

“It’s a roller-coaster ride which we haven’t seen since the second half of 2008,” Rantisi said by phone. “It’s not a market for guys with weak hearts. You really require courage to be in this market at this time and make the right decisions.”

The last time a two-day gain propelled the Dubai’s index into a bull market was in October 2008, before the global financial crisis brought Dubai to the brink of default. The shares posted their biggest two-day gain on record this week after Brent crude advanced the most in more than two months to $61.38 a barrel on Dec. 19.

A global equities rally last week, sparked by a pledge of patience by the U.S. Federal Reserve on the timing of a rate increase, also helped boost market sentiment. The emirate’s index jumped 2.3 percent at the close. Brent oil climbed 1.2 percent to $62.11 a barrel at 10:46 a.m.in London. A measure of 10-day volatility in Dubai stocks surged to a six- year high this week.

Bear Market

Six Gulf Arab indexes, including those in Dubai, Abu Dhabi and Saudi Arabia, fell into a bear market since Nov. 30 as Brent headed for its worst year since 2008. Governments in the Gulf Cooperation Council, which holds about a third of the world's proven oil reserves, need crude to average about $80 a barrel to balance their budgets, according to International Monetary Fund estimates.

Dubai’s equity benchmark was the best-performing gauge this year among the 90 indexes tracked by Bloomberg at the beginning of September. It erased those gains, taking year-to-date losses to 10 percent on Dec. 17, before a turnaround in oil led to a rebound.

“Valuations were compelling for many names and the DFM General Index had reached very cheap levels,” Ramez Merhi, a Dubai-based director for asset management at Al Masah Capital Ltd., said by e-mail. “This rebound could very well be the best buying opportunity we will see for the next few years.”

The emirates 14-day relative strength indicator climbed to 46.8 today. It fell to 11.2 on Dec. 17, the lowest on record. A level below 30 indicates to some analysts that securities have fallen too far. The measure still trades below its 50-, 100- and 200-day moving averages.

The rally pushed the gauge to trade at 12.3 times the estimated 12-month earnings of its members, from 9.7 on Dec. 17, compared with 11.2 for the MSCI Emerging Markets Index.

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