Regional markets may be decoupling from their international peers, and analysts say the four-day rout that hammered equities and currency markets across the globe last week is unlikely to affect investor sentiment in the GCC region. Analysts say Gulf equities are increasingly being driven by regional and market-specific events rather than tracking weaknesses among their global counterparts.
"Factors such as earnings and macroeconomic strength are facilitating the already evident decoupling with international markets," said Ali Khan, a director at the Dubai-based investment bank Arqaam Capital. "In terms of global reaction, I think there has been some reaction to the volatility, but the markets have been moving mostly on local catalysts," Mr Khan said. "Euro zone sovereign risk is there, but investors are more worried about progress on the Dubai World debt restructuring."
US, European and Asian stocks all ended last week with significant losses. The euro recovered a fraction of its losses after taking its most severe weekly fall since the onset of the global downturn, while crude oil futures fell for a fourth straight day on Friday. Even if Gulf markets initially react today to the global stock sell-off, analysts say local catalysts such as Arabtec's profits announcement this week could divert investor focus. The region's largest listed contracting company is expected to announce its first-quarter earnings today after the market closes.
"We might see a negative start to the week on low volumes as markets may react to the global sell-off, but the local factors such as Arabtec's profits will come into play during the week," said Hassan Awan, an associate at the asset management division at The National Investor in Abu Dhabi. Shuaa Capital last week reduced Arabtec's first-quarter profit forecast to Dh134.5 million on lower revenue, expected to be in the range of Dh1.53 billion. Shuaa had previously pencilled in a profit of Dh174.7m and revenue of Dh1.84bn. It has a "buy" recommendation on Arabtec stock with a fair value at Dh4.87 per share.
"What's more important is what the company's [chief financial officer] is going to say about possible co-operation with Aabar Investment on construction projects and resolution of Arabtec's debt issues with Nakheel," the developer owned by Dubai World, Mr Awan said. Arabtec is one of the largest trade creditors of Nakheel and stands to gain the most from its parent company's successful debt restructuring. The chief executive of Aabar, the Government-controlled investment company in Abu Dhabi, last week said both Arabtec and Aabar were discussing possible co-operation on construction projects in the capital.
The Dubai Financial Market General Index was the biggest loser last week, ending 6.8 per cent lower, while on the Abu Dhabi Securities Exchange General Index, shares shed 2.4 per cent. Abu Dhabi Islamic Bank's Islamic Index, which tracks the performance of Sharia-compliant stocks, fell by 0.27 per cent to 1,045.3. Kuwait ended down 4.8 per cent, and Qatari stocks declined by 1.1 per cent. The NASDAQ Dubai lost 3.1 per cent last week.
Omani and Bahraini shares bucked the broadly negative trend, rising 1.2 and 0.1 per cent, respectively, in the past five trading sessions. While earnings are expected to drive the UAE markets, analysts say oil prices - which have sagged in recent days - will continue to affect Saudi equities. "Fluctuation in oil prices affects the large-cap petrochemical stocks in Saudi Arabia, and if oil continued to slide the way it did this last week, we may see more negative performance in Saudi market," Mr Awan said.
Light sweet crude oil for June delivery on the New York Mercantile Exchange was down $2 a barrel at $75.11, the lowest level since February 12. Crude last week shed $11.08 a barrel, or 12.9 per cent. skhan@thenational.ae