20/08/2015 07:59 AST
Most major Middle East stock markets fell yesterday in response to weak oil prices, while panic selling again gripped Saudi Arabia, causing its index to slide 2.5% and bringing its losses this month to 12.2%.
About $50bn of market capitalisation has been destroyed in Saudi Arabia so far this month as local retail investors dump stocks.
Although the economy is still growing strongly, buoyed by heavy government spending, cheap oil is hurting state finances and the government began this month to sell bonds to banks to cover its budget deficit. Some investors worry this could tighten liquidity in the private sector over the long run.
Also, Saudi Arabia has been carrying much higher valuations than other Gulf markets, which has made it vulnerable. Even after this month’s fall, Riyadh is trading at about 14.5 times projected 2015 corporate earnings per share.
“Oil is currently trading 8% off its low while Dubai and Saudi are 27% and 14% off their respective lows during the same period. In other words, there is room for further downside,” Adel Merheb, director of equity capital markets at Dubai’s Shuaa Capital, said in a note.
The Saudi index dropped 2.5% to a seven-month low of 7,991 points yesterday. It fell this week below technical support around 8,500 points, where it had bottomed in March and April; that triggered a double top formed by the March and April peaks, which points down to December’s low of 7,226 points.
Saudi Basic Industries was one of just a few gainers, rising 0.4%. Today is the last day when it carries a 5.5 riyal dividend.
Other Gulf markets, with less demanding valuations, fared much better. Dubai’s index added 0.2% as most stocks closed higher, including heavyweight developer Emaar Properties, which climbed 0.1%.
Abu Dhabi rose 0.8% to 4,575 points, bouncing from technical support at its May low of 4,512 points.
Dubai’s index now trades at 12 times 2015 earnings and Abu Dhabi has a multiple of 11.
“The market is not expensive at all, especially compared with Saudi Arabia,” Sebastien Henin, head of asset management at The National Investor in Abu Dhabi, said of the UAE.
Qatar’s market slipped 0.3% and Ezdan Holding, up 0.8%, offset much of the losses posted by other stocks. Index compiler MSCI said at the end of last week that it would increase Ezdan’s weighting in its emerging markets index at the end of August, which will attract inflows of passive funds.
Egypt’s main index dropped 2.1% to 7,241 points, a fresh 1-1/2-year low, confirming a break of chart support on its July low of 7,527 points.
Although Egypt is an energy importer and its economy will benefit from cheap oil, Gulf Arabs are major investors in its bourse and the Gulf is a major source of foreign aid for Cairo, so it has been imitating Gulf markets’ losses this month.
Also, Henin said the Egyptian government had been slow to implement some economic reforms announced at an investment conference in March, such as the introduction of a new investment law.
“I think investors would like the country to move faster, but it is not happening,” he said.
Carpet maker Oriental Weavers tumbled as much as 4.5% during the day after the state competition watchdog accused it of monopolistic practices and referred it to the public prosecutor.
The company denied the accusations, which could result in a fine of up to 300mn Egyptian pounds ($38mn), and the stock closed only 1.4% lower.
Elsewhere in the Gulf, Kuwait’s index slipped 0.4% to 6,168 points; Oman’s index lost 0.6% to 6,152 points, while Bahrain’s index fell 0.2% to 1,326 points.
Gulf Times
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