Greek debt deal boost for markets

Markets across the region rallied yesterday, with Dubai venturing further into bull-market territory, after Greece received a €130 billion EU bailout.

Luxembourg prime minister and Eurogroup president Jean-Claude Juncker during a press conference following a euro zone meeting. AFP
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Markets across the region rallied yesterday, with Dubai venturing further into bull-market territory, after Greece received a €130 billion (Dh631.72bn) EU bailout.

The Dubai Financial Market (DFM) General Index rose 1.7 per cent, with Abu Dhabi's main benchmark climbing 0.9 per cent to its highest level since October 2. Saudi Arabia's Tadawul All-Share Index rose 0.8 per cent to its highest intraday level since October 2008.

A bull market is defined as an increase of 20 per cent or more. The DFM has risen 22.6 per cent since January 16.

"Today's deal means risk is on and people will be more willing to invest in emerging markets, including the Middle East," said Timothy Ash, the head of emerging-market research at Royal Bank of Scotland in Dubai.

The rally follows the agreement by euro-zone finance ministers to a €130bn support package for Greece after they persuaded private bondholders to take huge losses.

The cash was needed to help Greece to avoid a messy default next month.

The EU also raised the possibility of increasing an emergency bailout fund to €750bn to act as a further safeguard against the risk of a break-up of the euro zone.

Dubai and other regional financial markets have remained in the doldrums in recent months after anxious investors pulled out cash as the euro-zone debt crisis deepened.

At their lowest point, the region's bourses lost US$33.4bn (Dh122.68bn) in market capitalisation in the first half of last year as problems in Greece and other euro-zone nations combined with the Arab Spring to sour sentiment.

Signs of progress in fighting the crisis may help to tempt investors in from the sidelines.

"While concerns clearly remain about Greece and the European situation in general, the news should be positive for broader investor sentiment," said Chavan Bhogaita, the head of markets strategy at National Bank of Abu Dhabi (NBAD).

Improving confidence may also help to ease potential bond sales that have been put on hold until uncertainty lifts from capital markets. Dolphin Energy was among firms that delayed bond issues last year.

Borrowing costs also surged for companies needing to refinance debt.

"It could be that some issuers would come to the market at a better pricing," said Fawaz Abu Sneineh, the head of debt capital markets at the NBAD. "The positive feedback from Greece helps spreads to tighten in emerging markets."

The move could also spur more companies to approach markets, Mr Abu Sneineh said.

"A lot of issuers will be more actively considering coming to market if they're not already doing so," he added.

But market turbulence was likely to remain as the euro zone's debt crisis lingered, he warned.

If the single-currency area makes progress with resolving its debt situation, the region is likely to gain from higher oil prices, say analysts. Oil prices were mixed yesterday after positive news about Greece's bailout were offset by worries about oil supplies from Iran. The price of North Sea Brent crude dipped to $119.45 per barrel in London in midday trading yesterday after hitting its highest level in nine months on Monday.

"The potential benefits from an improvement in the Greek debt resolution would be mainly indirect, and would go through a better global sentiment supporting Asian demand. That backdrop would also most likely be supportive for oil prices, which is an obvious plus for the region," said Philippe Dauba-Pantanacce, a senior economist for Turkey, the Middle East and North Africa at Standard Chartered.

Improvement in Greece's economic outlook may also present opportunities for Gulf investors. In a signal of support for the indebted nation, Sheikh Abdullah bin Zayed, the UAE Minister of Foreign Affairs, said during a visit to Greece last month that the UAE was seeking to boost its investment in the country.

"The Gulf has had great interest in what is happening in Europe because of the strong economic ties," said Tom Connolly, the head of Middle East and Africa business at BNY Mellon Asset Management. "More specific to large and small sophisticated institutions from the region, there is a great deal of interest from a number of investors who are looking to acquire distressed or discounted assets, particularly real estate, in Greece."

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