Financial crisis felt in Middle East
November can be seen as the month in which any lingering doubts about the effect of the global financial crisis on our region were finally dispelled. The near collapse of financial behemoth Citigroup, oil prices at levels below USD 50/barrel, further evidence of cracks in some sectors of the Dubai real estate market, concerns over public and private debt levels in the Dubai economy, investor and political turmoil in Kuwait, all conspired to make the past month only slightly less painful than the record losses of October. After losing 22% in October, the broad MENA equity market index lost a further 14% over the month taking the 2008 loss in MENA equity markets to close to 55%.
Given it’s exposure to what is worrying investors the most – global economic growth and trade, real estate, debt levels and liquidity – it was no surprise that Dubai was in the eye of the storm and bore the brunt of the losses as stocks listed on the DFM lost an astounding 33% on average taking year-to-date losses on the exchange to 67% making it the worst performing regional market in 2008. Dubai was also where some important developments took place towards the end of the month as high level committees to tackle the economic issues were disclosed and an increased transparency regarding debt levels and strategies to deal with the problems in the real estate and real estate finance sector were made public.
Kuwait also made the headlines as investors succeeded in obtaining a court order to close the market for a day in a bid to stem losses and the Kuwait Investment Agency (KIA) mobilised to inject much needed buying into the market. Some important regulatory measures were also announced within the advisory body overseeing the Kuwaiti Stock Exchange (KSE).
In the largest market, Saudi Arabia, official announcements at the highest levels assured the public of the soundness of the Kingdom’s fiscal position and SAMA (Central Bank), reduced interest rates and reserve requirements in a bid to inject liquidity into the banking system and equity market.
The above mentioned measures, along with a relative easing of stresses in global financial markets, led to a marked improvement in prices and trading volumes towards the end of the month. Investor sentiment remains fragile however and it would take several weeks of relative stability before investors can feel that they have seen the worst and begin to take advantage of the extremely attractive valuations in MENA equity markets.
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