Mena equities calm as bargain hunting begins

• Bourse declines ease as buyers regroup
• Sell-off sparked by foreign investors
• Some switched from UAE to Saudi

Middle East equity markets have been relatively calm this week as selling pressure eased. 

Increasing numbers of investors sought to accumulate stocks at lower prices following a precipitous decline on most bourses this month.

The US-Israeli war with Iran has escalated into a wider regional conflict in which Gulf countries and Iraq have been forced to slash energy exports due to the closure of the Strait of Hormuz and strikes on hydrocarbon production facilities.

UAE markets have been hardest hit, with many of the country’s most important non-hydrocarbon sectors such as tourism, hospitality and retail among the stocks immediately most affected by the war. Real estate is likely to suffer longer-term disruptions.

“Despite the sustained sell-off, one could argue Gulf markets are still expensive given so many uncertainties remain,” said Akber Khan, acting chief executive at Doha’s Al Rayan Investment.

“But markets are forward looking and many are looking to take advantage of entry points ahead of an expected recovery, knowing that Gulf economies are backstopped by enormous sovereign balance sheets. It’s so binary for the Gulf – if the war ends, shipping resumes and regional economies recover swiftly, there will be a [sharp] rally.”

The Dubai and Abu Dhabi indexes are down 15.3 and 8.2 percent respectively this month, although they have fared better this week: Dubai has dipped 0.7 percent, but Abu Dhabi has edged 0.3 percent higher.

UAE markets had been regional outperformers before the Iran war, reaching milestone highs in February. The sustained rally had attracted substantial inflows from international investors, said Ali El Adou, head of asset management at Dubai’s Entrust Capital.

“When the conflict erupted, international investors rushed for the exit,” he said. “It was blanket selling, with some foreign investors re-investing in Saudi Arabian stocks instead because Saudi will benefit from higher oil prices, whereas the UAE economy is more diversified.”

Saudi Arabia’s oil production was just over 10 million barrels per day in January, according to Opec. The kingdom is still pumping about 7 million bpd via a pipeline to the Red Sea, according to Reuters, which enables it to mostly overcome the Strait of Hormuz blockade.

• Gulf leaders project resilience but warn of global fallout from war
• Dubai set for swift rebound if conclusive peace achieved
• Gulf companies turn to share buybacks

Saudi Arabia’s equity index is up 3.6 percent this month, a performance that only Oman bettered, having gained 7.8 percent. Oman lies outside the Strait of Hormuz.

The market-wide UAE equity sell-off has spurred local investors to accumulate stocks at 30-40 percent discounts from their recent peaks, said Adou. 

“I’m optimistic the situation will resolve and when it does the UAE equity investment story will remain intact,” he added. 

“The country has a compelling economic story. It’s the most advanced country in the region and among the most advanced worldwide in terms of infrastructure and openness to investors.”