Dubai stocks dropped the most in 10 months as top-level dismissals at Arabtec Holding Co. (ARTC), the United Arab Emirates’ largest-listed builder, stoked a selloff in a market that almost quadrupled in less than two years.
The DFM General Index fell 6.7 percent, the most since August, to 4,009.01 at the close in the emirate as 12 stocks lost more than 9 percent, amid speculation leveraged traders liquidated positions as the index fell 25 percent from its May peak. Arabtec dropped 9.8 percent to the lowest since January after the company confirmed it cut staff. People familiar with the matter said yesterday the chief operating officer, chief information officer and chief risk officer were fired.
The declines underlined deepening concern that five years after the global financial crisis the real-estate recovery in the Middle East business hub has become overblown. Shares in the emirate soared more than 250 percent since June 2012, led by property and construction companies. Every stock market in the six-nation Gulf Cooperation Council fell today, with Abu Dhabi's index (DFMGI) losing 3.3 percent and Qatar dropping 0.9 percent.
“Selling pressure on Arabtec is causing margin calls on retail investor accounts, hence the big move down across the U.A.E. as a whole,” Nayal Khan, head of institutional sales and trading at the Naeem Holding brokerage in Dubai, said by e-mail.
The U.A.E.’s central bank said June 8 there are signs the property market is overheating, since when the Dubai index has retreated more than 19 percent. The five companies with the highest-weighting on Dubai’s index account for more than 60 percent of the gauge, according to data compiled by Bloomberg.
Arabtec, which has the fifth-highest weighting, denied reports that hundreds of employees have been fired, according to a statement posted on Dubai’s stock market website today. The company laid off a “limited” number of people since the departure of Chief Executive Officer Hasan Ismaik last week to improve productivity and cut costs, it said.
The builder’s shares plunged 53 percent so far this month as Abu Dhabi state-run Aabar Investments PJSC cut its stake, stoking speculation the builder was losing government backing.
“The market wasn’t able to resist the turmoil that has been triggered by Arabtec,” Montasser Khelifi, senior manager for global markets at Quantum Investment Bank Ltd. in Dubai, said by e-mail. “At this level we’re starting to see good buy opportunities, but this doesn’t seem to be the opinion of the majority of the market players.” The market may not recover until September, he said.
The index entered a bear market yesterday after falling 20 percent from a May 6 peak. Emaar Properties PJSC (EMAAR), developer of the world’s tallest tower and the company with the biggest weighting on Dubai’s gauge, fell 3.4 percent to 8.50 dirhams. Deyaar Development lost 10 percent to 0.963 dirhams.
“This is indiscriminate selling,” Ramez Merhi, director of asset management at Dubai-based Al Masah Capital, said by e-mail. “The markets took the stairway up, and an elevator down.”
The cost of insuring the emirate’s debt against default rose 11 basis points, the most since March, to 154, according to data provider CMA.
The U.A.E. exchanges, along with Qatar’sm began trading as emerging-markets this month after index provider MSCI Inc. reclassified them in June 2013. Dubai’s gauge more than doubled almost a year after the upgrade on bets the change will lure investors managing about $8 trillion in assets. Arabtec and Emaar are among the nine U.A.E. equities included in the MSCI Emerging Markets Index.
Dubai’s stock index has declined 21 percent since the end of May, Abu Dhabi’s ADX General Index lost 13 percent and Qatar’s QE Index (DSM) fell 10 percent.
Even after the drop since the peak in May, Dubai’s index is the world’s third-best performer in dollar terms among more than 90 tracked by Bloomberg so far in 2014. The gauge is valued at 1.6 times net assets, a 1.9 percent premium over the MSCI Emerging Markets Index. It traded at an average discount of 39 percent during the past three years, data compiled by Bloomberg show.
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