Gulf stock markets recovered tentatively on Sunday, the first day when all the regional markets were open following the shock decision by a major state-owned conglomerate in Dubai to seek to restructure its debts.
Dubai World’s request for a credit standstill last month, the eve of a Muslim holiday in the United Arab Emirates and the Gulf, rocked international markets and investor confidence, and led to an exodus out of regional stock markets once some reopened last week.
However, while many stocks on the UAE’s main bourses in Abu Dhabi and Dubai fell by the maximum 10 per cent limit on each of the two working days last week, most other markets swiftly recovered from initial slumps, as worries over contagion eased.
“Investors are looking to take advantage of the collateral damage from Dubai, particularly in markets like Qatar, Saudi Arabia and Egypt,” Fadi Al Said, head of equities at ING Investment Management in Dubai, said on Sunday.
The two UAE markets also rose on Sunday, as investors took a more nuanced view of the fall-out from Dubai’s debt woes, and separated exposed sectors such as banks from healthier private sector companies in Abu Dhabi in particular.
The Dubai Financial Market rose 1.2 per cent, and the Abu Dhabi Stock Exchange gained 3.9 per cent on Sunday, the most since March, led by property companies and Etisalat, the state-owned telecoms operator.
“People often think that Dubai is the same as the Gulf, and it is an important market, but each market has its own dynamics, and investors are increasingly differentiating between them,” noted Mr Said. “Even in the UAE investors are differentiating between companies.”
Oman and Bahrain’s bourses declined slightly on Sunday, but the larger stock markets of Saudi Arabia, Kuwait and Qatar gained 0.3 per cent, 0.5 per cent and 0.3 per cent respectively.
“It is not pragmatic to cast a verdict on the entire Middle East based on the current issues at hand in Dubai, it would mean ignoring the strong case for some of its neighbouring economies, especially those of Saudi Arabia, Qatar and, yes, even those of Abu Dhabi,” Silk Invest, a frontier markets asset manager, said in a research note.
However, concerns over Dubai World’s restructuring of $26bn of debt – and fears that the move will have severe knock-on effects on banks and a tentative economic recovery in the UAE – will continue to cast a pall over the region, analysts warned.
Banks are particularly exposed to payment delays or haircuts on loans to Dubai’s state-run companies, and are already suffering from the shock of defaults at two major family-owned conglomerates in Saudi Arabia, estimated to owe over 100 banks about $20bn.
Gulf markets have already lagged behind most emerging markets this year, and Dubai’s debt problems “will remain a major issue until we have more clarity on the restructuring,” said Mr Said.