GCC stock markets extended their recent declines yesterday amid a pullback by foreign investors, rumours of big moves by hedge funds and a seasonal trading lull, said traders, analysts and company officials. Indexes tracking the Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX), the UAE's largest exchanges, reached their lowest levels in months yesterday.
The DFM index ended the day at its lowest level since last October and down 6.77 per cent in the past seven days. The ADX index lost 3.83 per cent yesterday, extending an eight-day slide in which it shed 10.09 per cent and pushing it to its lowest level since January. Recent performance elsewhere in the region has been poor as well. Saudi Arabia's Tadawul, the largest exchange in the region, rose 2.33 per cent yesterday but has lost nearly 17 per cent in the two months to yesterday. The main stock market in Doha is not far ahead, with a 12.73 per cent loss in the same period. And stocks listed on Oman's main market have tumbled 15.71 per cent, including a 5.72 per cent loss yesterday.
While tremors have spread across regional markets in recent weeks, observers say it is far too early to declare the beginnings of a crash like the one that cut UAE stock values in half in 2006. Indeed, the recent slide comes at a time of regional economic expansion, and the fundamental values of companies appear to be strong, they say. "I think some of the falls seem to be unduly harsh, though it's a bit early to assume the worst is behind us," said Ali Khan, of Arqaam Capital in Dubai. "I would say we're more than halfway there."
The UAE's largest property developers have all seen their stocks decline recently. Stock in Emaar, the Arab world's largest developer, yesterday reached its lowest level since last August and is down almost 37 per cent since reaching a high of Dh15.70 (US$4.27) per share last month. Aldar, the Abu Dhabi developer, saw its stock plunge 6.1 per cent yesterday. Aldar stock is down 24.8 per cent since its high in June.
These declines have led to concern that the property sector, on which the region's economic expansion and diversification away from oil largely hinges, is in trouble. A report last week from Morgan Stanley, the US investment bank, fanned the flames by suggesting that property prices in Dubai could decline 10 per cent by 2010. The report also came down negatively on Deyaar and Union Properties, although it was generally positive with regard to Emaar and Aldar.
Shafqat Malik, the chief financial officer at Aldar, said yesterday that his stock's movement seemed to lack a rational basis. The company announced strong profits last month and has many large projects underway, including Al Raha Beach, Yas Island and Central Market in Abu Dhabi. Foreign investors, Mr Malik said, could be selling the stock and taking profits, or pressures on international investors might be driving foreign capital out.
"There's no news here at all," he said. "Probably some of the people are capitalising on the gains they have made here to offset some of their losses elsewhere in the world. But the fundamentals are the same, and I think it's a short-term blip." If fundamental values are indeed strong, then stock prices may be reaching bargain basement levels. The price-to-earnings ratio - a common measure of the relative cheapness of stocks - for the DFM has declined from 24 to 12.4 since January. Stocks on the ADX were valued at 17 times earnings in January, but are now trading at 11.8 times, a significant discount. Sensing a bargain, investors could soon be ready to buy.
"The fundamentals of the main UAE companies are still strong, even at lower oil prices, and the valuations were reasonable even before this sharp drop," said William Browder, the founder and chief executive of Hermitage Capital Management, which invests in the UAE. One source at a brokerage said he was familiar with hedge funds that were paring back positions in the GCC because better opportunities had emerged elsewhere. Statistics suggest that foreign money is indeed flowing out, in part because the dollar has been strengthening and making US markets relatively more appealing.
The DFM, which compiles weekly reports on foreign portfolio investment, indicated last week that foreign investors had taken Dh400 million out of local stocks. The week before, they took out Dh269m, and the week before that Dh149m. That means foreign investors left with more than Dh818 million in the past three weeks. "The way the stocks in the UAE have been trading in the last two sessions suggests that there is a foreign hedge fund in distress that is being forced by its bankers to liquidate its UAE positions at any price," Mr Browder said. "You don't normally see these extreme price moves without someone in distress."
Other analysts have attributed the decline in part to a seasonal decline in market activity. With local markets in the GCC largely driven by retail investors, they say, bourses tend to stagnate in the summer, when they are on holiday. * Additional reporting by Bradley Hope @Email:afitch@thenational.ae @Email:bhope@thenational.ae
