Dubai market suffers worst week of the year

The past five trading days has seen Dubai's stock market suffer its worst week this year - losing a quarter of its value. The Dubai Financial Market closed down at 2106.14 yesterday, a weekly fall of nearly 700 points, leaving the market at its lowest level since November 2004. The DFM is now heading towards 1,000, the level at which it launched at the start of 2004. The DFM slumped 4.9 per cent yesterday, while the Abu Dhabi Securities Exchange lost 1.5 per cent of its value.

The worst-hit sector has been property. The DFM's index of property companies collapsed in value by 34.8 per cent this week, while the ADX's own tracker of developers has declined 25.2 per cent. At the same time, property prices in Dubai are plummeting. Paul Davies, the head of real estate for the Middle East at law firm Denton Wilde Sapte, said: "Off-plan prices have fallen substantially, particularly for projects where completion dates are a long way off. These properties were popular with speculators, but this market is now very dead. There continues to be strong demand owing to population pressures, but the availability of finance is the problem. Finance providers have tightened credit criteria as they seek to reduce exposure to the sector and tackle their own liquidity problems."

Shares of banks and financial companies have been following suit. The DFM's financial and banking index fell by 20 per cent this week, while the same ADX index declined 15.7 per cent. However, as Ali Khan, the executive director at Arqaam Capital in Dubai points out, not all banks and financial companies have been so affected. Mashreq Bank, listed on DFM, has barely moved since June because its stock is so illiquid.

In June its share price was Dh280 (US$76.2) and it is now Dh270, according to Mr Khan, because its stock holders are simply not selling. Some shares even launched a mini-rally late in the day. Aldar Properties, the largest developer in Abu Dhabi, ended the day up 2.6 per cent after a HSBC research report described the company as a "shelter for investors". Its shares rose to 4.3 dirhams. Sorouh Real Estate, Abu Dhabi's second-largest developer, gained as much as 5.6 per cent before closing 0.8 per cent down at 2.66 dirhams.

According to the HSBC report, Abu Dhabi has the cash liquidity to support its banks and property companies if needed. Abu Dhabi Investment Authority is the world's largest sovereign wealth fund with assets of between $250 billion and $850bn, according to the International Monetary Fund. "We continue to believe that Abu Dhabi, particularly Aldar, is likely to offer the best shelter for investors, while providing good appreciation potential," the HSBC report said. "We prefer Aldar because of its strong ties with the Abu Dhabi Government, which we believe is likely to provide support in case of need."

Mandagolathur Raghu, the head of research at Markaz in Kuwait, said the market movements were "unexplainable, illogical" and "unprecedented", and that it was hard to see where prices were heading because of the absence of price discovery. The Saudi Tadawul was closed yesterday and the Kuwait exchange was suspended until Monday because of a court order that sought to protect small investors from losses.

In other market news, Doha fell 2.6 per cent, Muscat dropped by 2.38 per cent and Bahrain lost 0.87 per cent of its value. [e-mail]