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Lost in the Gulf

31 January 2012 By Una Galani

Gulf stock markets are heading for a lost-half decade. Regional indices are down sharply since the start of 2008 and volumes are desperately thin. There is plenty to blame: the ghosts of Lehman, the Dubai-debt crisis, the euro-zone mess, the Arab uprisings. But market participants are doing precious little to help.

Investors are sitting on huge losses, especially in the UAE. The main Dubai market has shed 76 percent in the last four years. That is at least twice the loss of the MSCI World Index over the same period and equal to the losses on Spain’s benchmark IBEX35. Markets in Qatar and Kuwait are down around 50 percent.

Volumes are shrinking too. On the Dubai Financial Market, shares worth a total $8.7 billion changed hands last year compared to $82 billion in 2008. In Qatar, the value of transactions have roughly halved. Amid scarce liquidity, brokerages have closed leaving just a handful of institutions producing in-depth investment research. There hasn’t been a proper IPO in the UAE since 2008 and only a handful in Kuwait and Qatar. By comparison, Saudi Arabia’s market looks healthy.

Decent dividend flows and low valuations are failing to stir investor enthusiasm. The average dividend yield for the S&P Pan Arab index is around 4 percent and it is 3.6 percent for the UAE. That’s higher than the MSCI Emerging Market Index, according to Shuaa Capital. The average historic earnings multiple for the UAE, at 8.7 times, also lower than all the BRIC countries except Russia.

Gulf stock markets, dominated by real estate and financial stocks, do not reflect the underlying strength of the real economy and high oil prices. Saudi Arabia could quickly overtake its rivals and gain emerging market status from key index compliers if it opens its doors to foreign investors later this year as widely expected. That will leave the UAE, Qatar and Kuwait looking even less appealing.

Consolidation, better investor relations, and some chunky listings, would help. The UAE could make the most of the lull to merge its three exchanges and then list its more successful entities like airline Emirates and water utilities DEWA. Qatar needs to raise foreign investor limits. In the absence of concerted policy moves, Gulf market activity, and asset values, will simply worsen.


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