Bahrain unrest hits Gulf markets

17/02/2011 00:00 AST

Gulf Arab markets fell yesterday as a third day of unrest in Bahrain raised political risk premiums in the world's top oil exporting region.

There is definitely some panic, as you can see in the markets today," said M.R. Raghu senior vice president for research at Markaz in Kuwait. "The amount of uprising we are seeing in the Middle East is a serious concern for foreign investors. They are likely to pull more money from the markets to be on the safer side.

Thousands of Shiite demonstrators, inspired by popular revolts that toppled rulers in Tunisia and Egypt, poured into Bahrain's capital to mourn for a second protestor killed in clashes this week, while the cost of insuring Bahrain's debt against default rose to a new 18-month high.

Egypt has postponed the re-opening of the Cairo bourse for a third time. It was slated to resume trading on Sunday, having been shut since Jan. 27 as demonstrations paralyzed the financial sector and led to the end of former president Hosni Mubarak's 30-year rule. The exchange will now only reopen when banks are working properly.

Saudi Arabia's index fell 1.8 percent to a two-week low as bluechip stocks slid. Political risk wasn't much of a consideration for regional investors and they now see they may have to rebuild their portfolios to take this more into account," said Hesham Tuffaha, Bakheet Investment Group head of research. "No one has a clear vision of what will happen.

Bahrain, which has experienced discontent for years as the government's oil and financial reserves have dwindled, is linked to Saudi Arabia via a causeway and the island state is near much of the kingdom's key oil infrastructure. Bahrain's index, slipped 0.2 percent as only nine stocks traded, but other regional bourses made larger declines, with Qatar and Kuwait dropping 1.8 and 1.4 percent respectively, the latter to a seven-month low.

In terms of its economy and market cap, Bahrain is one of the smallest markets in MENA, so it shouldn't impact other regional economies," said Haissam Arabi, chief executive and fund manager at Gulfmena Alternative Investments.

Markets have been drifting sideways to lower because of political tensions in the region and that includes Bahrain," Arabi said. "The political environment is overshadowing market performance and investor sentiment. We are retail-driven markets and there is a lingering concern that is being priced in, but hopefully should be short-lived.

Dubai's Union Properties fell 6.9 percent to a record low after its fourth-quarter loss increased five-fold due to losses on valuation of properties, the latest UAE developer to report below-forecast earnings.

Abu Dhabi's Sorouh Real Estate fell 3.1 percent, also to an all-time low, extending losses since it swung to a fourth-quarter loss.

Union Properties' performance isn't a surprise - all UAE developers that are heavily centric to either Dubai or Abu Dhabi have posted similar, disappointing results," added Arabi.

This is to be expected, given there's no recovery in real estate and I don't foresee one anytime soon." UAE property values face further double-digit declines and Dubai house prices are about 60 percent below a 2008 peak as over-supply and a lack of demand weigh.

Reuters