Business | Markets
Gulf stocks likely to fall further
Stocks in Dubai, Abu Dhabi and Saudi Arabia that more than doubled the past four years are unravelling as lower oil and real-estate prices weaken economies in the biggest crude-producing region.
- Bloomberg
- Published: 00:02 November 27, 2008
London: Stocks in Dubai, Abu Dhabi and Saudi Arabia that more than doubled the past four years are unravelling as lower oil and real-estate prices weaken economies in the biggest crude-producing region.
The MSCI GCC Countries Index of 115 Gulf companies, already down 57 per cent in 2008 through Tuesday, may drop 20 per cent in the next six months, said Jeff Chowdhry, who helps oversee $150 billion at F&C Asset Management. Ten months after the index traded at 20 times reported earnings, Emaar Properties PJSC, the Middle East's largest developer, trades below three times profit.
Now some of the world's biggest emerging-market investors say valuations may fall further because prices don't reflect the collapsing property market and the 66 per cent tumble in oil since its July 11 record. Templeton Asset Management's Mark Mobius says stock markets in South Africa and China are more attractive.
"If anyone's got any Middle Eastern stocks, I would be taking this opportunity to sell," Chowdhry, F&C's head of emerging-market equities, said in an interview from London. "It's a combination of a deteriorating fundamental outlook, bubble valuations which are just starting to unwind in real estate and banks, plus liquidations in funds."
The Dubai Financial Market General Index of 29 companies surged 493 per cent from 2004 to 2007 as residential property prices climbed four-fold in the last five years and a 195 per cent rise in oil-boosted government spending.
The Abu Dhabi Securities Exchange General Index jumped 159 per cent during that period, while Saudi Arabia's Tadawul All Share Index gained 149 per cent.
All three indices tumbled more than 40 per cent this year and traded this week at the cheapest levels on record compared with earnings, cash flow and net assets.
Emaar Properties, the second-worst performer this year in the Dubai index, is valued at 2.4 times earnings after falling 83 per cent in 2008. Dubai-based Emirates NBD trades for five times profit after a 71 per cent retreat.
The Dubai index's 69 per cent decline in 2008 through yesterday was the steepest among benchmarks in the world's 50 biggest equity markets. China's CSI 300 Index lost 66 per cent, while India's Sensitive Index fell 57 per cent.
Forced selling
Templeton's Mobius said on November 17 that he's "aggressively" buying in other emerging markets such as China and South Africa and it's too early to go "bargain hunting" in the Gulf.
"We really didn't like the Middle East because it was up too high and there were so many other bargains around," Mobius, who manages about $24 billion of emerging-market assets as executive chairman at Templeton, said.
While the deteriorating outlook for profits caused the retreat in Gulf stocks at the start of the year, this month's 20 per cent decline in the MSCI GCC index is mostly the result of sellers who dumped shares to repay loans, according to Oliver Bell, the head of emerging-market specialist equities at Pictet Asset Management, which oversees about $91 billion.
Arabtec Holding Co., the construction company building the world's tallest tower in Dubai, has tumbled 42 per cent this month and traded for 1.8 times earnings this week, the cheapest since Bloomberg began tracking the data in 2005.
"It's left some companies where the fundamentals really haven't changed that much and yet they are trading at ridiculous valuations that give you a once in a lifetime opportunity," said Bell, who runs Pictet's Middle East and North Africa equity fund in London. Bell isn't buying yet, because "at the end of the day you're catching a falling knife," he said.
Middle East economic growth will slow to 5.3 per cent next year from 6.1 per cent in 2008, the International Monetary Fund (IMF) estimates. The IMF expects China's economy to grow at an 8.5 per cent pace next year and India to expand by 6.3 per cent, according to the fund's World Economic Outlook.
Property prices in Dubai fell four per cent in October, and declined five per cent in Abu Dhabi, signalling a "turning point" in the markets, London-based HSBC Holdings Plc said.
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