Regulators pressured to revive markets

Dubai Financial Market stocks now limited to 10% rise or fall during trading in a bid to slow down the impact of international market turmoil.

DUBAI // Authorities are under increasing pressure to introduce measures to prevent further stock market falls in the Gulf - and perhaps even begin a recovery. As of today, stocks on the Dubai Financial Market (DFM) will be limited to falls or rises of no more than 10 per cent in one day. In a bid to slow down the impact of international market turmoil and reduce investor losses per trading session, the DFM amended the "price fluctuation band" to 10 per cent.

The stocks were previously allowed to rise or fall by 15 per cent - a process more commonly known as limit-up or limit-down in the market - before the bourse would suspend trading. There is already a 10 per cent price band for shares on the Abu Dhabi Securities Exchange (ADX), according to a spokeswoman. The latest net figures on the DFM illustrate the panic - last week a net Dh571 million (US$155m) worth of shares were sold. Foreign investors bought Dh2.22 billion of shares, but sold Dh2.79bn.

In Saudi Arabia, there are calls to try other methods to revive the bourse, such as persuading the government to buy into falling stocks, or allow share buybacks to spare ordinary citizens losses from weeks of bourse declines. The Gulf's largest stock market closed on Saturday at its lowest level in more than four years amid concerns over the global financial crisis. "Our leadership must start suggesting measures because we can't afford to leave things as they are. The government is concerned," Abdul-Rahman al Zamil, a member of the economic committee of the Shura Council and also a former government minister, told Reuters.

In Kuwait, the government decided last week on a package of measures, among them bigger investments by the Kuwait Investment Authority (KIA), the country's sovereign wealth fund, to prop up the bourse. According to a newspaper report yesterday, the KIA plans to increase its efforts to support the local market by investing an extra 1bn Kuwaiti dinars ($13.7bn) in the bourse, after having spent 280m dinars in a first step.

Analysts said more Gulf states should follow the Kuwaiti model, which had ensured better liquidity conditions. However, the DFM's new limits have done little to lift the sentiment of the market. Yesterday it plunged .41 per cent, following a global collapse on Friday and the Tadawul's fall on Saturday. "If it is aimed at boosting investors' confidence, it has failed to serve the purpose," said Ali Khan, the executive director at Dubai-based Arqaam Capital, of the move. "Ten or 15 per cent, it really does not matter. It's like delaying the losses to the next day."

The ports operator DP World fell by 18.18 per cent yesterday, but because it is listed on the Dubai International Financial Exchange (DIFX) it does not have the same protection as the DFM or ADX. The DIFX has a 10 per cent protection limit for all shares except DP World, which has a 15 per cent limit due to its higher trading volumes. However this is simply to prevent human trading errors, and not to curb volatility. Because of its free-market ethos, if a stock approaches its price band then the DIFX temporarily extends the band to allow it to fall or rise as it wants.

It was a uniformly bad day for GCC markets, but not as bad as it could have been, considering the huge falls in developed markets on Friday. The DFM fell by 5.41 per cent, with the property developers Emaar and Deyaar declining 10 per cent and 8.26 per cent respectively, but the ADX performed better, suffering just a 2.3 per cent loss after its listed banks performed better than expected. The Saudi Tadawul was the only Gulf market to gain yesterday, by 0.34 per cent, which was a recovery of sorts after it plunged 5.94 per cent on Saturday. Other, smaller markets suffered large losses - Doha fell by 7.18 per cent and Muscat by 5.68 per cent; Bahrain and Kuwait suffered less, falling just 0.83 and 0.4 per cent respectively.

"What DFM has managed to do is to slow the losses down," said Frank Matthias, a Dubai-based trader. "There is no news to lift the market, and losses slow or fast are not a help in any way." * with Reuters [e-mail] [e-mail]