The UAE's stock market slump deepened yesterday as the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) both posted losses. The DFM was down 1.98 per cent, leaving it 17.05 per cent off the high for the year, which it reached in February. The ADX lost 1.82 per cent, and is 14.68 per cent off the high it reached last month. During those time frames, combined losses from the two exchanges have erased around Dh144 billion (US$39.2bn) of share value. Other exchanges in the region reversed course today and posted gains, showing signs of recovery after some steep declines. Saudi Arabia's Tadawul, the largest exchange in the GCC and the hardest-hit during a months-long regional slide, notched its second gain in a row. It was up 0.8 per cent for the day. Oman's stock market was up 3.79 per cent, a day after falling more than five per cent. Qatar's stock index was also in the black. In the UAE, the property sector has been hit particularly hard. Shares in Emaar, the Arab world's largest developer, reached their lowest level in more than three years yesterday. They dropped by 2.02 per cent to Dh9.7. Other major developers, including Union Properties, Aldar Properties and Sorouh Real Estate, have also seen sharp drops in share prices. Many people in the property industry have blamed a report that Morgan Stanley issued last week, which said Dubai prices could drop by as much as 10 per cent by 2010 as a wave of new apartments and office space comes on line. "In Dubai and Abu Dhabi, I believe part of it was a reaction to what we are hearing regarding real estate," said Samer al Jaouni, the general manager of the Middle East Financial Brokerage Company in Dubai. "There was the Morgan Stanley report, and then there were rumours in the market about eliminating speculation in the real estate sector." Other market watchers have attributed the decline to a number of additional causes. First, they say, foreign investors have pulled money out as better opportunities have arisen in developed markets. Second, some of these investors are taking profits and pulling back in the hope of re-entering the market later on, when prices are lower. Third, the strengthening US dollar has made dollar-denominated assets more attractive to foreigners. Fourth, large investors and hedge funds in the West have been forced to reduce their portfolios of investments that were made with borrowed money. This decline in leverage, spurred on by the global credit crunch, has led some of them to exit positions in the GCC. "I know from outside sources that foreign banks are forcing their investors to reduce their leverage by liquidating their positions," said Zaid Ghoul, the chief financial officer of Union Properties. "A lot of hedge funds are being forced to go down from four-to-one leverage to two-to-one, or one-to-one." Over Dh800 million in foreign money has flowed out of stocks on the DFM in the past three weeks, according to reports from the bourse. Another reason cited for the market decline is the customary summer lull. The GCC's markets are driven by retail investors and can decline when these shareholders sell stock in the summer before leaving on holiday.
afitch@thenational.ae
