Gulf markets wilt in the summer heat

Dubai: In the past two months, stock markets in the Gulf region have all witnessed declines of varying degrees. Not even the best performing bourses of the year, Doha and Muscat, have been immune from it.

Since July 1, the Saudi Tadawul index has declined 5.18 per cent, the UAE index has lost 13.3 per cent and the Oman index has slipped 13.36 per cent.

Regional and international dynamics coupled with the summer lull have played their role in a relatively low trading scenario, according to traders analysts and analysts.

The bourses in which the foreign investors have access have been significantly affected with several players, particularly hedge funds, exiting the market starting July to make realignments to their portfolio and that has been across the board - UAE, Oman, Qatar, and Kuwait.

The very same foreign investors in most cases were net buyers for the first six months.

But again, foreign investors selling off or reducing positions were a few highly leveraged hedge funds, according to a Dubai-based investment banker.

With prime brokers such as Merrill Lynch, Goldman Sachs, and Morgan Stanley tightening controls and worried about their ratings and losses on their books, had to go to their number one client, the hedge fund industry and ask them to reduce their leverage, said Haissam Arabi, managing director of asset management at Shuaa Capital.

"Requesting the several billion dollar industry to shave off a little bit, naturally meant a significant volume for the size of emerging markets. Unfortunately, the timing was bad - it was in the middle of the summer when the bulk of the retail is out of town on vacation, which this year has got extended into Ramadan. So when those sell orders came from the funds there was no one to buy," he said.

But there was a comforting factor despite their exit.

"The drops came in on very thin volumes," Arabi added.

Other global factors had their role to play in the selloff decisions of foreign investors. In Oman, for example, foreign investors started to pull out in late July when the dollar was on a rebound and the oil prices starting to come down.

"This is a result of a general de-risking," said Sayyid Wasfi Jamshid Al Said, deputy general manager and head of investment banking, National Bank of Oman.

Led by losses in banking shares, a result of regulatory changes regarding lending rates and reserve requirements, the Muscat Securities Market lost momentum, according to Al Said.

But for some investors, he added, a market that is up nine per cent year to date and second to Doha in terms of positive gains, it simply offered a good opportunity for profit taking.

Qatar was also affected by losses in banking shares, but in general, the foreign investors in Doha Securities Market were no different there, selling off mainly to reshape their portfolios, according to Sharif Abdul Khalek, manager, institutional accounts, Beltone Financial Securities.

"The first thing they do is to reduce their emerging markets positions, which tend to be more volatile. The UAE has been the most affected of all the Gulf markets by the foreign selloff," Khalek said.

In the UAE, worries about the real estate sector slowing down has led to more volatility in those stocks and associated stocks such as banking and building materials companies. And the allegations of corruption against high officials of property developers and financial institutions played heavily in the minds of the investors.

The continuing downtrend in Saudi Arabia for most part of the year -down 18.8 per cent - was for a different set of reasons which included a strong IPO season for the first half of the year that made the secondary market weak. More than $12 billion was raised through IPOs and rights issues.

Also in late July, the Saudi regulatory authority announcement that it would start publishing names of shareholders, who own five per cent or more of an entity's shares made investors nervous, according to a senior official of an international investment bank in Saudi Arabia.

Low volumes had a role to play in bringing the index down in market, which is more than 90 per cent retail. "At a time when larger investors are away, some of the smaller punters get their way and thrust their weight around the market," the official said.