(Updates share prices, analyst comments in last paragraph.)
Oct. 3 (Bloomberg) -- Persian Gulf shares outperformed emerging markets for a second quarter as Dubai stocks reached the cheapest levels in six months and government spending in the region spurred economic growth.
The Bloomberg GCC 200 Index of regional shares retreated 6.5 percent and Dubai’s DFM General Index slipped 5.6 percent in the period amid concern Europe’s sovereign-debt crisis is worsening. That compares with a 23 percent slump for the MSCI Emerging Markets Index. Dubai’s measure is valued at 0.6 times book value, or assets minus liabilities, while developing nations shares trade at 1.5 times.
“Before the selloff in global markets, equity prices and valuations in the region were already at attractive levels due to political tensions” earlier this year, said Yong Wei Lee, who helps oversee about $1.2 billion as a senior fund manager at Emirates NBD Asset Management in Dubai. Some Gulf nations have “accumulated large fiscal reserves” that “support their large infrastructure spending plans, which provides a cushion from the economic slowdown in developed markets.”
Oil-exporting economies in the Middle East and North Africa will expand 4.9 percent in 2011, compared with growth of 1.5 percent in the U.S. and 1.6 percent in the euro region, the International Monetary Fund said last month. Saudi Arabia, which depends on oil for 86 percent of its revenue, ordered sweeping increases in spending, including $67 billion on housing and funds for the military and religious groups to stave off protests. Crude prices have averaged 23 percent more this year from the same period of 2010, Bloomberg data show.
Beacon of Stability
Qatar and the United Arab Emirates have been spared protests that spread across the Middle East, toppling leaders in Egypt, Tunisia and Libya and leading to violent protests in Bahrain and Syria. Gulf Arab oil exporters, including Qatar, the U.A.E. and Saudi Arabia supply about a fifth of the world’s crude.
The Gulf Cooperation Council “stands out as a beacon of financial and political stability,” says Paul Cooper, Dubai- based managing director at Sarasin-Alpen & Partners Ltd., which oversees more than $500 million in the Middle East. “It can boast an accelerating rather than decelerating economy, budget surpluses rather than budget deficits and low and falling debt.”
Qatar, which plans to invest $88 billion on infrastructure to host the 2022 soccer World Cup, forecasts economic expansion of about 16 percent this year, the world’s fastest-growing economy, and a budget surplus of $6.1 billion. Qatar’s QE Index gained 0.4 percent last quarter, the sixth-best performance among 94 benchmark indexes tracked globally by Bloomberg.
A drop of 6.3 percent in the quarter left Abu Dhabi’s ADX General Index valued at 1.1 times book value, compared with 1.8 in Saudi Arabia and 1.1 in Kuwait. The MSCI World Index tumbled 17 percent last quarter and is valued at 1.5 percent book value as a worldwide equity rout erased about $9.2 trillion from global stocks since the end of June as signs mounted that the world economy is faltering.
Trading volumes in Gulf stocks plunged in the third quarter from a year ago as foreign funds trimmed holdings of riskier assets. An average 47 million shares were traded in Abu Dhabi since the end of June compared with 62 million shares in the same period of 2010, according to data compiled by Bloomberg. The value of traded shares in Dubai tumbled to 30.2 million dirhams ($8.2 million) yesterday, the lowest since August 2004. Shares with a value of about 42 million dirhams traded today.
“The lack of liquidity will remain a concern to investors in general,” said Tariq Qaqish, deputy head of asset management at Dubai-based Al Mal Capital.
Overseas investors who fled Gulf equity markets during the 2008 global financial crisis have been slow to return, according to Emad Mostaque, a London-based Middle East and North Africa strategist at Religare Capital Markets Plc. The DFM Index in Dubai, the second-biggest of the seven sheikdoms that make up the U.A.E., slumped 72 percent that year. The measure has lost 13 percent so far this year.
Dubai World, a state-owned holding company, rocked global financial markets in late 2009 after saying it would have to restructure debt. The company reached a restructuring agreement with its creditors in March. The emirate’s stock index closed 0.4 percent lower in 2010 than at the end of 2008, while the MSCI World Index rallied 39 percent in the same period and emerging markets and crude oil more than doubled.
Dubai’s stock market saw net foreign investment outflow of 56.5 million dirhams in June and 15.9 million dirhams in July, according to the bourse’s website.
Gulf “markets are dependent on the locals, who have had a reasonable year with salary rises and handouts,” Religare’s Mostaque said. “The Arab Spring led to more foreign money leaving; as such, you don’t have the day to day correlation of other global markets.”
Qatar raised the basic salary and pensions of Qatari civilian employees 60 percent as of Sept. 1. Military officers got 120 percent more and military personnel of other ranks received a 50 percent increase. Qatar needs oil at about $55 a barrel for its budget to break even and the U.A.E. of about $95, according to a report by Deutsche Bank AG last month. Crude prices have averaged $95.35 a barrel this year compared with $77.72 in the year-earlier period.
“Unless we enter a global recession where oil drops to $50, the region will be fine,” said Sebastien Henin, who helps oversee $100 million at The National Investor in Abu Dhabi.
--Editors: Claudia Maedler, Shanthy Nambiar
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