Dubai Financial Market in biggest fall for six years in fresh wave of panic selling

Fund managers are warning of more volatility ahead if the price of crude oil continues to plummet, with Dh65bn wiped off the DFM in the past week.
Dubai’s key stocks gauge, the Dubai Financial Market Index, shed 7.6 per cent on Sunday. Kamran Jebreili / AP Photo
Dubai’s key stocks gauge, the Dubai Financial Market Index, shed 7.6 per cent on Sunday. Kamran Jebreili / AP Photo

Dubai’s main stock index had its biggest one-day drop in six years as a further drop in crude oil prices on Friday triggered a fresh wave of panic selling.

More than Dh65 billion have been wiped off the market value of UAE stocks in the past week with fund managers warning of more volatility ahead if the price of crude continues to plummet.

In the long run, however, portfolio managers remain bullish about the economic growth story of the UAE.

The governments of the Emirates have accelerated efforts to diversify revenues away from oil through trade, tourism, and financial services and have spent heavily on infrastructure such as roads and airports.

“Oil prices remain the main driver for our market,” said Rami Sidani, the Dubai-based head of frontiers market investment at the asset management firm Schroders. “This is obviously weighing on sentiment and retail investors are panicking. Similarly international investors are exiting our markets because they are perceived to be energy stories. So for the short term, it’s all about oil prices and the market will not pay any attention to fundamentals.”

“The drop is very severe and it’s hard to try and quantify the potential slowdown in the economy that will result from low oil prices but we do not believe that fundamentals will change, especially in the UAE which has reached more diversification relative to the neighbouring economies.”

The UAE is the world’s eighth biggest oil producer and the federal government funds more than 60 per cent of its budget from crude exports. The drop in UAE stocks comes as oil has shed more than 40 per cent of its value since June amid increasing production in countries such as the US and waning demand amid a global economic slowdown. In the past week alone, the price of crude has tumbled 12 per cent.

Dubai’s key stocks gauge, the Dubai Financial Market Index, shed 7.6 per cent on Sunday. Abu Dhabi’s main index, the Abu Dhabi Securities Market General Index, decreased 3.6 per cent and entered a so-called bear market. In neighbouring Doha, the Qatar Exchange Index fell 5.8 per cent as it also entered a bear market, a drop of over 20 per cent since its September high.

Stocks in Dubai and Abu Dhabi have been buoyed in the past two years by an uptick of business in the Emirates following years of slow growth in the aftermath of the 2008 global financial crash.

Investments into real estate and stocks from buyers in other emerging markets such as Russia, Saudi Arabia and China has also given a boost to the country’s economy.

“We see macroeconomic conditions of the present much stronger than that in 2008 and 2009,” said Sanyalak Manibhandu, manager of research at NBAD Securities. “In 2009 UAE’s economy, in common with those in the rest of the GCC, contracted. All GCC economies rebounded in 2010. No portfolio investor in the region is talking at present about macroeconomic contraction in 2014 or 2015.

“There is potential for GCC governments to trim fiscal spending in the immediate term, as they assess the duration and extent of crude price declines. But we expect capital projects, such as the Expo 2020 and Abu Dhabi 2030, to be kept on track and on schedule.”

mkassem@thenational.ae

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Published: December 14, 2014 04:00 AM

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