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29 March 2024

UAE minister reassures investors after stock plunge

Abu Dhabi index edged up 0.7% in early trade, helped by First Gulf Bank and Etisalat. (Ahmad Ardity)

Published
By Reuters

Ups and downs in stock markets are normal and markets tend eventually to resume their upward trends, UAE’s Minister of Economy Sultan bin Saeed Al Mansouri said on Tuesday.

Mansouri, who is also chairman of the Securities and Commodities Authority, the UAE's market regulator, was issuing a statement to reassure investors after the country's stock markets plunged on Tuesday, partly in response to sliding oil prices.

Dubai's main equities index closed 7.3 percent lower, bringing its losses this month to 28 percent, while the Abu Dhabi market tumbled 6.9 percent.

Mansouri said the UAE's economy and corporate profit growth were strong, and that oil's share of the economy was less than 30 percent.

He urged investors to base their decisions on careful analysis and act rationally. He did not announce any concrete new steps to support the markets.  

Dh180bn wiped out from GCC markets

A fresh wave of selling wiped out $49 billion (Dh180bn) of stock market value across the Gulf Arab economies on Tuesday as the price of Brent crude oil dropped below $60 a barrel for the first time since 2009.

The stock market losses came on top of over $200 billion of value already destroyed since the end of October. Most of the frenzied selling has been by retail investors who fear governments will cut spending in line with falling oil revenues.

Saudi Arabia's bourse, which has the biggest share of petrochemicals among markets in the region, tumbled 7.3 percent in its biggest daily loss in six years and reached 7,330 points, its lowest level since June 2013.

Dozens of Saudi stocks fell by their daily 10 percent limits, indicating further potential weakness. The index has dropped 34 percent from its September peak.

While analysts think earnings in many sectors such as banking and retailing will not necessarily be dampened much by cheap oil, petrochemical firms are exposed as they will lose the competitive advantage they enjoy against foreign rivals from cheap feedstock. Also, the global economic weakness indicated by the commodities rout is a bad omen for petrochemical exporters.

Abdullah Alawi, assistant general manager and head of research at Aljazira Capital in Riyadh, said oil's plunge had served as a catalyst for a correction in an overvalued market, whose trailing price-to-earnings ratio had almost reached 21 in September, exceeding blue-chip benchmarks such as the FTSE 100 and S&P 500.

"That was way too expensive," he said. "Many stocks reached unrealistic valuations."

The market is likely to remain volatile until the Saudi government assures investors that it will at least maintain spending near current levels, many fund managers believe.

"We are waiting, especially in Saudi Arabia, for the government budget for 2015 to see whether the government would maintain its current expenditure levels or if they would cut down significantly," Alawi said.

"We need a big event like that, otherwise we will remain volatile and negative."

Saudi Arabia is expected to announce its 2015 budget by the end of this month, and possibly as soon as on Monday.

Elsewhere in the region, Qatar's index tumbled 3.5 percent and Kuwait lost 2.1 percent. Bahrain's bourse was closed for a national holiday and will reopen on Thursday.

Oman's benchmark dropped 2.9 percent to 5,409 points, its lowest level since August 2012. Unlike its bigger and wealthier Gulf neighbours, Oman is expected to reduce spending substantially and raise taxes to cope with lower oil revenues, and the government has already announced plans that include reducing gas subsidies.