Bloomberg News

Dubai Stocks Drop Most in 6 Weeks as MSCI Extends U.A.E. Review

December 16, 2011

Dec. 15 (Bloomberg) -- Dubai stocks dropped the most in six weeks, leading a decline in United Arab Emirates and Qatar, after the two countries failed to secure emerging-market status at index provider MSCI Inc.

Emaar Properties PJSC, the builder of the world’s tallest skyscraper, fell the most since August. Dubai Financial Market slid to the lowest since February 2009. Dubai’s benchmark DFM General Index lost 1.3 percent, the most since Nov. 1, to 1,367.49 at the 2 p.m. close in the emirate, bringing the drop for the week to 1.2 percent. Abu Dhabi’s ADX General Index fell 1.2 percent today as Aldar Properties PJSC declined to a record.

MSCI, whose stock indexes are tracked by investors with about $3 trillion in assets, will extend its review to June for reclassification of the countries from frontier status “to give additional time for market participants to assess the effectiveness” of the new payment systems, according to a statement. While more regulation is needed, it has to be in place “long enough” for investors to test it, MSCI said.

“This is disappointing news for Qatar and the U.A.E.,” Georges Elhedery, head of global markets for the Middle East and North Africa at HSBC Holdings Plc in Dubai, said in an e-mailed statement. “It is important that the markets continue to work toward addressing these issues and continue to raise awareness among the international investor community.”

FGB Slides

First Gulf Bank PJSC, which last month raised its foreign share ownership limit, retreated 3.7 percent, the most since Aug. 9, to 15.50 dirhams. The shares had soared 12 percent since the lender controlled by Abu Dhabi’s ruling family on Nov. 29 raised the amount of shares foreigners can hold to 25 percent from 15 percent.

MSCI’s decision came after a delay in June to allow investors time to assess the delivery-versus-payment models the exchanges in both countries implemented. Market participants said there are “significant concerns over the effectiveness of this new framework to fully ensure the safeguarding of their assets under certain circumstances,” the index provider said in its statement. For Qatar, “stringent foreign ownership limits, including on large companies, remain a major concern to international institutional investors,” MSCI said.

Qatar’s QE Index fell 0.2 percent. Qatar’s exchange doesn’t expect foreign ownership limits in companies, currently at 25 percent, to be raised next year, or that short-selling will be introduced, Chairman Hussein al-Abdullah said Dec. 4.

The MSCI decision was “understandable,” the exchange said in an e-mailed statement today.

Trading volumes in the GCC have plunged this year as foreign funds trimmed holdings of riskier assets amid regional uprisings and as Europe’s debt crisis deepened. Dubai volumes are at a six-year low. In Qatar, trading is down about 40 percent from the same period in 2009.

Liquidity

“I would have been happy if they said the lack of liquidity in the markets was one of the main reasons for their decision, but they didn’t, so I feel that they evaded the issue,” CapM Investment PJSC’s Abu Dhabi-based Chief Investment Officer Mohammed Ali Yasin said today. “I don’t think it was unexpected because the market conditions in December aren’t better than what they were in June.”

Emaar slid 4.3 percent to 2.65 dirhams, while Dubai Financial Market, the only publicly traded stock market in the region, fell 4 percent to 89.3 fils.

Aldar plunged 4.2 percent to 92 fils after the real-estate developer said it will today exchange 2.1 billion dirhams ($572 million) worth of bonds held by Mubadala Development Co. into shares at 1.75 dirhams each. The original conversion terms stipulated that the bonds would be converted at not higher than 2.30 dirhams and not lower than 1.75 dirhams.

The Bloomberg GCC 200 Index, which tracks the biggest 200 companies in the region, fell 0.4 percent and Kuwait’s benchmark index retreated 0.3 percent. Oman’s MSM30 declined 0.1 percent, while Bahrain’s gauge lost less than 0.1 percent. Saudi Arabia’s stock market is closed for the weekend.

--With assistance from Dana El Baltaji in Dubai. Editors: Claudia Maedler, Shaji Mathew

To contact the reporter on this story: Alaa Shahine in Dubai at asalha@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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