At the start of March 2010, Abu Dhabi’s Aldar Properties was the 77th largest listed company by market capitalisation in the Middle East and North Africa (Mena) region. A year later, it has fallen out of the top 100 and has received not only a massive bailout from the Abu Dhabi government, but has sold some of its key assets to improve its balance sheet.

If any proof were needed that the impact of the financial crisis was still hanging over the region’s capital markets throughout 2010, it is evident in Aldar’s fortunes.

The 2010 MEED ranking of the 100 largest listed companies by market capitalisation showed that banks were out of favour. Six of the 11 companies that dropped out of that table were in the financial services sector. For 2011, it is the real-estate sector that is out of favour, while banks are being rehabilitated.

The Middle East has underperformed, in terms of attracting foreign investment on to its exchanges

The two most significant companies to fall out of the top 100 are Aldar, and Saudi Arabia’s Emaar, the Economic City, both of which are speculative real-estate plays launched by some of the region’s wealthiest governments in a bid to help diversify their economies. Both have struggled to capitalise on their early promise.

Fallen performance

The combined market capitalisation of real estate and construction companies on the top 100 list was $68bn in 2010. They have now fallen to $44.9bn, as investors worry about the oversupply of housing units and contractors struggle to extract payment from clients.

Meanwhile, six of the 11 new firms that made it into the top 100 are banks, as they have largely now priced in the impact of the crisis.

If the performance of the top 100 companies in the region is anything to go by, then 2011 could be the nadir of the financial crisis.

The combined market capitalisation of MEED’s ranking of the Mena region’s 100 largest companies has barely moved from the $644.3bn it had reached at the start of March 2010. It managed to limp forward by less than 2 per cent, rising to $656.6bn at the start of March 2011. This is disappointing following the massive 37 per cent increase in market capitalisation of the top 100 firms in the ranking of 2010. What makes the performance of the regional markets look even worse is that it is still a long way off the heady heights of 2008, when the market capitalisation of the 100 largest firms by stood at $863bn.

Downward trend

It is also reflective of the broader downward trend in the region’s capital markets. At the end of 2010, the total value of the Gulf stock exchanges was $770bn, down from $1.1 trillion at the end of 2007, according to the Arab Monetary Fund. The Dubai Financial Market lost $4bn in value during 2010, while the Abu Dhabi Securities Exchange lost about $2bn.

Bankers in the region say it is now more likely that large regional firms will seek a listing on international bourses

Saudi Basic Industries Corporation (Sabic) remains by a long way the largest listed firm in the region. At $68.7bn, Sabic is still more than twice the size of its nearest rival, another Saudi firm, Al-Rajhi Bank, which is valued at $28.6bn.

Both companies actually shrank in terms of their value, although only marginally. Saudi firms now make up about 39 per cent of the top 100, with a combined capitalisation of $252bn.

The lack of growth reflects that the Middle East has underperformed in terms of attracting foreign investment on to its exchanges. Saudi Arabia, where foreigners are largely barred from investing in the exchange, has been less impacted.

Egypt, which benefits from significant international investment, has seen its portion of the Top 100 fall. In 2010, Egypt had 11 companies in the index with a value of $41.4bn. This has now fallen to seven firms with a value of $26.8bn. With Egypt in 2011 facing political uncertainty and a stagnant economy, these figures look set to fall further as more international investors sell out of the Egyptian exchange.

The UAE’s three exchanges make up just 12 companies on the list, down from 13 in 2010, although at about $72bn their value has remained roughly the same. The GCC as a whole made up $503.5bn of the $656.6bn market capitalisation of the top 100, indicating that the Gulf remains the home of the largest companies in the region.

Financial services firms continue to dominate the ranking, illustrating the concentration around a few sectors on the regional exchanges. Of the 100 largest listed companies, 47 are banks. Together they account for $258bn of the market capitalisation of the index, or about 40 per cent. That is a $30bn increase on the value of the banking sector in the 2010 index, largely due to the increase in the number of financial services firms in the list, from 42 to 47.

The banks also posted some of the most significant turnarounds of the year. Some of the highest rising companies of the year were banks.

Lebanon’s Bank Audi rose from 62 to 33 as its market capitalisation rose from $3bn to $5.3bn. Qatar’s Masraf al-Rayan rose 31 places to 43, increasing its value to $4.5bn, and Morocco’s Banque Centrale Populaire rose 34 places to become the 55th equal biggest-listed company in the region, with a market capitalisation of $3.6bn.

The biggest riser of the year was Kuwait’s Al-Ahli Bank, which rose from 96 on the list to 60 driven by an improvement in its profitability during the year of 36 per cent.

Winners and losers

Dubai’s DP World also managed another significant rise in its valuation, going from $6.4bn to $9.4bn. That left it at number 17, up from last year’s position of 27. DP World was buoyed by the resolution of debt problems at its parent company and news that it plans a secondary listing on the London Stock Exchange. The move is intended to help improve the company’s valuation, with the firm often complaining it is undervalued on Nasdaq Dubai.

The biggest decline of the year was Jabal Omar Development Company, which has struggled with a number of issues at its Mecca development. Over the past 12 months it has been trying to secure financing for the project, but has also had to address issues with the contractors on the project and its continued losses.

Despite international sanctions, several Iranian companies are new entrants to the MEED 100, including several financial services companies, such as Saderat Bank and Parsian Bank. The number of Iranian companies on the list has doubled to 10 and their combined capitalisation has risen to $47bn, from $20bn.

Telecommunications companies have often been analysts’ favourites over the past year, as investors look to avoid a financial crisis that quickly popped the regional real-estate bubble, before becoming a wider economic problem.

The MEED 100 suggests telecoms companies have not been a safe haven, either. The number of telecoms companies in the ranking actually fell from 15 to 14 and the combined value of the sector fell from more than $133bn to about $129.6bn.

Another significant new entrant is Aluminium Bahrain (Alba), which floated on the Bahrain Stock Exchange in late 2010. The company raised $541m from its initial public offering (IPO), giving it a market capitalisation of $3.5bn and making it the 57th largest listed company in the region. With much of the first quarter of 2011 disrupted by protests, it is unclear if Alba will be able to sustain its evaluation.

Otherwise, there are very few new entrants resulting from IPOs. Continued pessimism among investors has deterred firms from seeking new listings over the past 12 months. Bankers in the region say it is now more likely that large regional companies will seek a listing on international bourses, such as the London Stock Exchange. These have deeper pools of liquidity and a more experienced investor base in such bourses than their home markets.

Uncertain future

At the start of 2011, most analysts were optimistic the year would herald a new dawn in the regional equity markets. Expectations were raised by the potential for the UAE and Qatar to be upgraded to emerging market status by global index provider MSCI, leading to billions of dollars flooding into those markets from international investors who use the MSCI rankings as a basis for their strategy. There was also increasing speculation that Saudi Arabia would open its doors to foreign investors, with many bankers confident that it would occur in 2011.

It is still unclear if either of these will actually occur, but the chances seem to be diminishing. The head of the Saudi stock exchange came out in January to deny speculation that the market was close to opening up.

The youth protest movement that has swept across the Arab world since the beginning of the year has also depressed markets. Foreign investors have retreated from the region, and even local investors have became cautious.

Egypt’s market spent much of the first quarter closed as result of the change in government in the country. By 24 March, the Kuwait stock exchange was down 9.6 per cent from the start of the year, the Saudi stock exchange was down 3.9 per cent and the Muscat Securities Market was down 5.2 per cent.

Recovering that lost ground in an atmosphere of political uncertainty and the downgrading of economic growth forecasts for the region will be difficult. While 2011 may be the nadir of the impact of the financial crisis on the region’s stock markets, a growing political crisis means that the 2012 MEED 100 could repeat the disappointing trends of this year.

See right for the spreadsheet listing MEED’s Top 100 largest companies in the region.