Dubai hits seven-year low while Saudi exchange sheds billions

19 January 2012

Poor start to the year for UAE bourses

Pressure to combine the UAE stock exchanges was given fresh impetus when the Dubai Financial Market (DFM) general index slid to a seven-year low on 16 January, dropping 1.01 per cent to close at 1301.24 points.

The UAE bourses have had a troubled start to the new year. Real estate companies fell sharply, with Aldar Properties and Sorouh Real Estate dropping 2.4 per cent and 2.7 per cent respectively on 12 January. On 15 January, Aldar dropped a further 3.7 per cent and Sorouh fell another 4.2 per cent, pushing down the Abu Dhabi Securities Exchange (ADX) general index by 0.7 per cent.

The DFM managed to gain 0.7 per cent on 17 January, closing at 1310.40 points. Calls to consolidate the Dubai and Abu Dhabi markets continue as bankers and economists hope it would attract more capital to the UAE. Stockbrokers have also put in a request to lower trading fees to the capital markets authority.

The ADX closed lower for the second day in a row amid fears that Dana Gas, the most actively traded stock on the exchange, would be unable to repay a $1bn sukuk (Islamic bond) that was due in October 2011. The company’s stocks fell 8.1 per cent on 17 January, pushing the ADX general index down a further 0.8 per cent.

“The problem in the UAE is the tight liquidity in the market. Liquidity dropped about 50 per cent in 2011. If they combine the exchanges, it will be a good achievement and will increase liquidity,” says Majdi Gharzeddeene, head of investment research at Kuwait-based Kipco Asset Management Company (Kamco).

US-based ratings agency Standard and Poor’s (S&P) decision to downgrade nine out of the 17 Eurozone countries on 13 January resulted in a negative reaction on the regional bourses, with the banking and financial services sector of the Saudi Stock Exchange (Tadawul) falling 0.4 per cent.

“The downgrading of the Eurozone countries is affecting sentiment in the region. There are no positive indicators about sorting this issue out and the region has been negatively affected,” says Gharzeddeene.

The Tadawul All Shares Index (TASI), however, managed to close at 6,494.77 points, 0.13 per cent higher a day after the downgrade was announced, but the region’s largest bourse has suffered from the correlating trend with the international markets.

The Tadawul has lost $3.2bn off its market capitalisation since the beginning of the year, yet it still has potential, particularly since the Capital Markets Authority is looking to open the bourse up to foreign direct investment.

“The Saudi market is driving itself, about 82 per cent of the $366bn value of shares traded in the GCC markets last year was in Saudi Arabia. The fundamentals of the economy are very good, profitability is good and valuation multiples are very cheap,” says Gharzeddeene.

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