Dubai’s bourse slunk to a seven-week low on Tuesday, a day after Standard & Poors ended coverage on a top Dubai company.
Most Middle East markets also declined, tracking declines in world markets and oil prices as fears mounted over the pace of a global economic recovery.
Dubai’s index fell 3.6 percent to its lowest level since Dec. 9. On Monday, S&P cut and then withdrew its rating for Dubai Holding Commercial Group (DHCOG), citing the firm’s “materially weaker” cash position and a lack of information.
The S&P move was the latest blow to the emirate’s financial reputation and follows government-owned Dubai World’s shock debt standstill request in November.
“Are people in the full knowledge of the facts? The answer is no and so investors can’t make cogent investment decisions,” said Keith Edwards, head of asset management at Doha-based The First Investor. This uncertainty is heightening selling pressure, with investors taking the safe option and exiting the market.
“If you don’t have full disclosure, you can’t price in the investment risk, which means the market becomes more speculative,” said Edwards.
Emaar Properties lost 7.6 percent, while Union Properties fell the maximum 10 percent as Credit Suisse cut its price target for the developer.
“Retail traders are mainly driving the market, which continues to be very volatile — this is to be expected until we see Q4 figures and can gauge the direction of the market,” said Chamel Fahmy, Beltone Financial regional senior sales trader.
Saudi Arabia’s Tadawul All-Shares Index (TASI) fell for the first day in three after Saudi Basic Industries Corp (SABIC) dropped 2.2 percent in its biggest one-day loss for nine weeks as sliding oil prices spurred investors to sell petrochemical stocks.
Overall market breadth was strongly negative, with only 17 advancing companies losing out to 106 decliners, recording an AD ratio of 0.16, the Financial Transaction House (FTH) said in its daily market commentary. Only two sectors closed with gains, namely the retail and agricultural industries sectors, which gained 0.13 percent and 0.27 percent respectively. Negative sector movement ranged from a small drop of 0.04 percent in the multi-investment sector to a loss of 1.90 percent in the petrochemical sector, FTH said.
“Saudi investors are worried international markets will correct, especially after Obama’s bank plan — this will create volatility and could change the direction of global markets,” said Youssef Kassantini, head of discretionary portfolio management at Rasmala Investment.
On Thursday, US President Barack Obama announced plans to curb US banks’ proprietary trading.
Egypt’s index fell for a third day after Orascom Telecom (OT) lost 6.4 percent ahead of a rights issue.
Bank Muscat climbed 4.1 percent, despite reporting a fourth-quarter loss on larger-than-expected provisions, helping Oman’s index to end higher.
“Going forward, it looks like the bank has written off its bad loans and the market doesn’t expect it to make further provisions,” said Sayed Quadry, vice president of business development at Amwal Investment in Muscat.
“After two days of gains, I would expect some profit-taking on the market tomorrow.”
SABIC contributes to national development
The Saudi Basic Industries Corporation (SABIC) sponsored the Industrial Innovation Award which was presented to developers of new ideas for industrial projects at a ceremony held in Riyadh on May 18.