UAE stocks were in freefall again on Tuesday in what one securities brokerage here dubbed “Black Tuesday” for Middle East markets.
Not only were UAE stocks, led by the property developers Emaar Properties in Dubai and Aldar Properties in Abu Dhabi battered, but equities in Saudi Arabia, Kuwait and Qatar also slid as the price of crude oil, which underpins GCC economies, dropped further.
The Dubai Financial Market General Index tumbled 7.3 per cent while the Abu Dhabi Securities Market Index shed 6.9 per cent. Brent crude oil prices extended losses to levels not reached since 2009 as the price per barrel declined 3.3 per cent to US$59.11 at 10.15am in New York.
In the past three days, Dubai’s benchmark measure has shed 14 per cent, and more than Dh60 billion has been wiped off the market value of the nation’s equities in the same period.
The DFM is now down nearly 8.5 per cent for the year. Abu Dhabi has slid 9.2 per cent in the period. Emaar and Aldar, which had been riding high on the back of a revival in real estate, both dropped by the maximum 10 per cent allowed by the regulator.
Emaar, Dubai’s biggest publicly traded real estate company, plunged to Dh6.1 a share, taking its drop from its high of Dh10.4 this year to more than 40 per cent. In Abu Dhabi, Aldar plummeted to Dh1.98 a share.
UAE ministers stepped up to try to reassure investors, with the Minister of Economy Sultan Al Mansouri saying that ups and downs were normal for stock markets and that he expected a rebound.
Meanwhile, the Minister of Energy Suhail Al Mazrouei told a financial conference that the country can cope with the drop in oil prices. The large fiscal reserves that the UAE has built up will allow it to keep spending on development projects in coming years despite the recent plunge in oil prices, he said.
Others were less sanguine.
“The UAE equity markets have lost most of the gains they made through the year and with the continued decline in the price of oil influencing all markets, it is difficult to see how this slide will be stopped,” said Nour Eldeen Al Hammoury, the chief market strategist at Abu Dhabi-based ADS Securities. It called today “Black Tuesday”.
The UAE is the world’s eighth-biggest oil producer and the Federal Government funds more than 60 per cent of its budget from crude exports.
The drop in UAE stocks comes as oil has shed more than 45 per cent of its value this year amid increasing production in countries such as the United States and waning demand amid a global economic uncertainty.
In the past two days alone, the price of crude has dropped 4.6 per cent.
The drop in Middle East markets also comes amid a tumble in developing markets, with the benchmark MSCI Emerging Markets index shedding as much as 1.5 per cent on Tuesday. Russia, in the grips of an economic meltdown with the drop in crude oil, a weakening currency and sanctions placed on it in the aftermath of the president Vladimir Putin’s annexation of Crimea, led the declines.
And while the fortunes of UAE stocks in recent years have been largely tied to the revival of the economy following years in the wilderness, it has also benefitted from a renaissance in trade, tourism and investment from other emerging markets such as Russia. That flow of money may now be stemmed.
“The drop in the Russian rouble will also have an impact on tourism to the UAE,” said Shafi Wahid, the head of the institutional equities desk at Mubasher Financial Services.
“The Russian rouble is down 40 per cent since the crisis, so the spending power is reduced and will mean fewer tourists coming in.”
mkassem@thenational.ae
* with Reuters
Cultural fiesta
What: The Al Burda Festival
When: November 14 (from 10am)
Where: Warehouse421, Abu Dhabi
The Al Burda Festival is a celebration of Islamic art and culture, featuring talks, performances and exhibitions. Organised by the Ministry of Culture and Knowledge Development, this one-day event opens with a session on the future of Islamic art. With this in mind, it is followed by a number of workshops and “masterclass” sessions in everything from calligraphy and typography to geometry and the origins of Islamic design. There will also be discussions on subjects including ‘Who is the Audience for Islamic Art?’ and ‘New Markets for Islamic Design.’ A live performance from Kuwaiti guitarist Yousif Yaseen should be one of the highlights of the day.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Name: Hassan Mohsen Elhais
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Defined Benefit Plan (DB)
A defined benefit plan is where the benefit is defined by a formula, typically length of service to and salary at date of leaving.
Defined Contribution Plan (DC)
A defined contribution plan is where the benefit depends on the amount of money put into the plan for an employee, and how much investment return is earned on those contributions.
