Dubai Stocks Lead Gulf Rally as Peg Lures Buyers After Fed Shift

Dubai stocks jumped the most in almost four months, leading most Gulf markets higher, as investors sought assets in economies where currencies are pegged to the dollar following the first U.S. interest-rate increase in almost a decade.

The DFM General Index advanced 2.9 percent to the highest level in more than a week as traders exchanged more than 300 million shares, the most in a month. The Tadawul All Share Index in Saudi Arabia, the region’s biggest economy, advanced the most since August. The Bloomberg GCC 200 Index, which tracks the biggest publicly-traded companies in the six-nation Gulf Cooperation Council, climbed the most in three months.

Central banks across the GCC, where most currencies are pegged to the dollar, followed the U.S. Federal Reserve’s decision to increase interest rates in the last 24 hours. Four out of the six central banks in the region raised key rates, even as the drop in oil prices puts pressure on their budgets and tests their resolve to maintain the peg. The Gulf is home to about 30 percent of the world’s proven oil reserves, and crude is one of their main sources of income.

"We have an advantage over other emerging markets because the currencies are pegged," so there are fewer foreign exchange risks, said Nabil Farhat, an Abu Dhabi-based partner at Al Fajr Securities. "Even before the Fed increased the interest rate, banks had picked up the pace of raising interbank rates" because they want to attract as many deposits from outside as they can, he said.

The three-month Emirates Interbank Offer Rate is at the highest in more than two years, and a similar rate in Saudi Arabia soared the most seven years in percentage terms on Thursday.

Oil to Recover

Property-related companies Arabtec Holding Co. and Drake & Scull International PJSC were most traded stocks on Dubai’s index, with investors exchanging more than 130 million shares, almost half the index’s total trading volume on Thursday.

Interest rates are going to continue to rise, "so why not buy real estate for example," Farhat said. By 2019, oil prices will probably recover -- "that’s the way the investors think right now," he said.

Abu Dhabi’s ADX General Index increased 2.1 percent, led by First Gulf Bank’s 4.7 percent advance. The Bloomberg GCC 200 Index added 1.8 percent.

Saudi Arabia’s Tadawul rose 2.6 percent as the number of shares changing hands reached the highest since August. Saudi Basic Industries Corp., which has the second-biggest weighting on the gauge, added 4.6 percent to the highest level in almost two weeks after the company recommended paying a dividend of 3 riyals per share for the second half of this year.

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