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Panic selling in Gulf stocks

dfm interior Most stock markets in the Gulf fell sharply on Tuesday after oil prices hit five-year lows, triggering a fresh wave of panic selling of shares by local retail investors, though most fund managers and analysts think the region can cope comfortably with cheaper oil.

Dubai’s market, traditionally the Gulf’s most volatile, tumbled 3.5 percent to 3,889 points, though it closed well above its intra-day low of 3,761 points. It rebounded from near major technical support on its July low of 3,731 points.

Developer Emaar Properties, the emirate’s largest listed firm, dominated trading and closed 3.6 percent down at 8.02 dirhams, off its intra-day low of 7.50 dirhams.

Trading volume in Dubai rose to its highest level in seven weeks and Gulf-based investors, who piled into the market in search of quick gains earlier this year, were big net sellers, according to bourse data.

The sell-off in Dubai and across the region came after the price of Brent crude oil hit a new five-year low of $65.33 per barrel. However, the commodity steadied later in the day and climbed above $66 by the time Dubai closed.

“Crude and technicals” dominate investors’ attention right now, said Sanyalak Manibhandu, manager of research at NBAD Securities in Abu Dhabi. “People wanted to take a bet in this region, they went to Dubai – now they’re panicking.”

Most economists think that because Abu Dhabi, Saudi Arabia and other big Gulf oil exporters have huge fiscal reserves, they will continue spending heavily despite oil’s drop, so the regional economy will stay strong – and Dubai will continue prospering. Credit default swaps and bond yields of the big Gulf economies have barely moved as oil has dropped.

But oil’s slide has been so sudden that retail investors are rushing to take profits on the gains which Dubai made earlier this year. The emirate’s index is up 15.4 percent year-to-date, making it the second-best performer in the Gulf after Qatar , which is up 19.0 percent.

Harshjit Oza, a property and banking analyst at Cairo-based Naeem brokerage, said Emaar’s weakness was not due to any specific concerns about Dubai’s property market, which has been rebounding strongly from its 2008-2010 crash.

Instead, the stock is a victim of investors’ overall bearish mood, he said, as well as the fact that it passed the record date for a special 1.257 dirham-per-share dividend on Nov. 30.

“I think that Emaar is just a victim of a correction,” Oza said, adding that the sell-off presented a buying opportunity in the stock. Emaar’s debt-to-equity ratio has been stable at about 0.3 for the last five years, according to Reuters data.

Varouj Nerguizian, executive director and general manager of Bank of Sharjah, a United Arab Emirates-based lender, said he had not seen signs of any major downturn in Dubai’s property market as oil dropped in recent weeks.

“We have financed through a developer a project in Meydan (a district in Dubai) and within a week the villas were sold and 35 percent paid in an escrow account. Where is the downturn?”

During the 2008-2010 crisis, banks in the UAE were hit by bad loans related to residential real estate projects. But Nerguizian said banks were now protecting themselves by obtaining large portions of the value of property purchases upfront in escrow accounts.

Dubai’s Omniyat Group began work on a 48-storey tower in Dubai Maritime City on Tuesday – a sign that developers are not changing their outlooks in response to cheap oil.

Mahdi Amjad, chief executive of Omniyat, told reporters: “I don’t feel there’s oversupply – we will see sustainable growth rather than the large jumps seen in the last two years.”

Other stock markets in the region were not hit as hard as Dubai but still posted considerable losses on Tuesday. Abu Dhabi’s market fell 2.4 percent and Qatar lost 2.3 percent.

Commercial Bank of Qatar was the only gainer in Doha, edging up 0.6 percent after it named a new deputy chief executive and said it would slightly increase its majority stake in Turkey’s Alternatifbank before that bank delists from Istanbul’s bourse.

Saudi Arabia’s index fell 1.8 percent as heavyweight Saudi Basic Industries dropped 4.2 percent and most other stocks also declined.

The Saudi market is particularly vulnerable to cheap oil because about a third of its capitalisation is in the form of petrochemical firms, which face losing their competitive advantage against foreign rivals due to subsidised feedstock.

The Saudi market’s drop in the last few weeks has nearly wiped out the benchmark’s year-to-date gains, which now stand at just 1.1 percent.

“As long as there is volatility in the oil market, you are going to see these ups and downs in the stock market,” said Asim Bukhtiar, head of research at Saudi Arabia’s Riyad Capital. “Investors want to see some stability in oil prices.”

However, analysts believe Saudi corporate earnings outside the petrochemical sector will be little affected by cheaper oil, suggesting the stock market could snap back quickly if oil prices stop sliding.-Reuters