Rasmala: UAE best performing GCC market in February 2009 with over 6% gain
Following a 10% loss in January, UAE markets gained more than 6% and were the best performing GCC market in February. Arabtec and DFM led the rally in Dubai ending the month higher by 32% and 43% respectively. Dubai listed real estate names also returned to the scene with Emaar and Union Properties gaining 5% and 15% respectively, while the banking sector’s performance was mixed as Emirates NBD lost 5% while Dubai Islamic Bank ended the month 18% higher.
Early in the month, the government of Abu Dhabi undertook a fresh capital injection of AED 16bn into five Abu Dhabi banks in a move intended to strengthen the sector and keep Abu Dhabi’s financial institutions well-capitalized. However, as a result, market chatter was rife about the inability of Dubai based banks to secure the same level of support. The loss of confidence in Dubai owned entities and fears of default led to the risk premium (CDS) for Dubai related borrowers reaching levels higher than those of Iceland which eventually went bankrupt.
The government of Dubai’s announcement of issuance of a USD 20bn long term bond program of which USD 10bn was fully subscribed by the Central Bank of the UAE was critical; the bonds have a five year maturity and will pay a 4% fixed coupon which should quell speculation by market participants of the ability of Dubai to service its outstanding debt in the short and medium term. As can be expected, the Dubai CDS fell as conditions in the credit market eased noticeably. The 3 months EIBOR rate closed the month at 3.375, converging closer to its US counterpart in a sign that liquidity conditions in the interbank market are easing.
Around the GCC, with a loss of 5% over the month, Kuwait’s weak performance continues to be attributed to the unfavorable market environment and losses faced by the investment companies as an economic stimulus plan to rescue the investment and financial sectors from the impacts of the global downturn remains hostage to the tensions between Parliament and the Government. Low-cost carrier Al Jazeera Airways performed well with an increase of 5% while National Bank of Kuwait ended the month 6% lower.
Bahrain was down by almost 5% in February as banking sector woes continue with further rating downgrades over the month; Al Ahli United Bank and Gulf Finance House lose 18% and 16% of their value respectively.
Oman ended the month with a modest gain of almost 1%, the industrial sector performed favorably with Al Jazeera Steel ending the month 52% higher. The banking sector also performed well despite Bank Muscat declining approximately 14% over the month.
Qatar was the worst performing market in the region, losing 16% in February. Despite high consensus expectations for the Qatari market, it has been one of the world’s worst performers thus far this year. The market has seen widespread foreign selling for the past month and local institutional support has capitulated after sustaining severe losses.
Industries Qatar reported a more than 90% dive in 4Q08 profits, on weaker demand and lower prices for chemical products; the stock ended the month 13% lower. Qatar National Bank, Qatar Islamic Bank, and Commercial Bank of Qatar lost 18%, 23%, and 37% respectively. The Qatar Investment Authority (QIA) plans to inject a total of USD 5.3bn into the local banking system by buying stakes of up to 20% in some Qatari banks. Notably, the banking sector continued to struggle in February despite the QIA policy to provide support through capital injections. Moody's has downgraded the outlook for the Qatari banking sector to negative due to concerns on asset quality and exposure to the real estate and stock market.
Registering a loss of almost 9%, Saudi Arabia was the second worst performing market in the region. The market edged upwards for the first two weeks before ending sharply lower on the back of a poorer outlook for earnings and dampened investor sentiment. An important development was a report by the Saudi Monetary Agency (SAMA), that banks in Saudi Arabia have posted a 17% rise in net profit in the first months of 2009 compared to the last quarter of 2008 in contrast to leading international banks which continue to incur huge losses amid the global financial crisis.
Egypt ended the month 7% lower, bringing year to date losses to 23%. The country’s slowing economy has reduced inflationary pressures and allowed the Central Bank of Egypt to reduce its key rates for the first time since April 2006. The government has clearly shifted its focus from reigning in inflation to alleviating a sharp contraction in the economy. Egypt has committed to double its economic stimulus plan to LE 30bn (U.S Dollar 5.5 billion) and announced a number of measures to shore up the economy with the aim of reversing slowing growth. However, the country’s fiscal situation needs to be monitored closely as weakness in all of the key current account drivers is likely amid an external demand shock.