Jumping in with the big dipper

Global market turbulence has led to widespread drops in many regional markets

Middle Eastern and North African equities plunged between October 10 and 16 in a regional dip that was big, widespread and not caused by anything local or even a real change of economic conditions elsewhere. With double digit falls in Dubai, Riyadh and Cairo, plus drops of more than five percent in Muscat, Doha and Abu Dhabi, the year’s deepest single week fall in several Arab markets in week 42 was a testimony to edginess of investors here and abroad who appear over determined to not be caught with their hands full of stocks at the moment when the developed economies’ bull market swings to a baisse.

This fear of a global dive has been around for weeks and weeks. So when the Dow, the S&P 500, the Nikkei and various European indices ran into turbulence in early October and tumbled even more on October 10, Arab markets saw overselling of real estate, banking, petrochemical, industrial and other stocks starting on October 12 and throughout the following week. The psych pressure was apparently exacerbated by the fact that the Saudi, Kuwaiti, Qatari and Omani markets had been inactive for Eid al-Adha observances in week 41.

As Gulf markets came under sudden pressure, some MENA based analysts immediately, and with hints of glee, sent out I-told-you-so messages while other latter day augurs and market beat lackeys ventured into guesses of reasons for the bad week that ranged from oil price conspiracies to October 7 warnings which the International Monetary Fund had vaguely directed at overheating stock markets.

While global markets were still topsy turvy in week 42, news agencies meanwhile reported that IMF managing director Christine Lagarde on October 17 called the week’s stock selloffs “a correction and perhaps, at this point at least, an overreaction.”

The big MENA dip for the moment thus ended as it had begun, wholly because of mental global contagion. Positive numbers on the US economy and recovery of some calm in Europe stemmed the slide in the developed markets towards the end of the week. The Nasdaq, the S&P 500 and the Dow moved up by between 1 and 1.6 percent that Friday, October 17.

As global markets showed green arrows on October 17, the next MENA trading session on October 19 saw the deep fall of Arab equities halt with the same abruptness with which it had began. Some oversold indices immediately leapt higher — 3.5 percent in Dubai, 2.4 percent in Saudi, 1.6 percent in Qatar. Of the big losers in week 42, only Egypt on Sunday still slipped another 0.8 percent.

On Monday October 20, however, GCC equity investors were conservative with their enthusiasm. Only the TASI advanced with a 1.1 percent gain; Abu Dhabi, Doha and Dubai indices dropped by between 1.5 and 1 percent. The other three GCC markets recorded lesser or minute drops on Monday, but drops nonetheless. The EGX 30 for its part looked better on Monday than Sunday, but also in a very subdued way as it rose only 0.1 percent.

This leaves questions as to whether the recent enthusiasm for new listings on Gulf and North African markets will be dampened by the return of doubts about the sustainability of growth in regional share prices. With subscription periods of two initial public offerings — of leading Saudi bank NCB and of Amanat, a Dubai based startup holding in education and healthcare — having commenced at the start of week 43, some indications on the actual current IPO appetite in the Gulf might be forthcoming in about two weeks’ time.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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