Dubai Caps Worst Month Since 2008 as Real Estate Stocks Tumble

Dubai shares declined, posting the biggest monthly retreat in almost six years, as investors fled property stocks.
The DFM General Index (DFMGI) lost 4.4 percent to 3,942.82 at the close, bringing its monthly loss to 22 percent, the most since November 2008. It entered a bear market last week after the shares plunged 20 percent from their peak in May. Emaar Properties PJSC (EMAAR), the developer with the biggest weighting on the measure, decreased 3.7 percent. Arabtec Holding Co. (ARTC), the United Arab Emirates’ largest listed contractor, fell 10 percent, the most allowed in a day.

The U.A.E.’s central bank on June 8 warned that the country’s real estate market may be overheating, spurring the stocks’ first quarterly retreat since the three months ended June 2012. A restructuring at Arabtec stoked concern the market’s property-led gains in the past two years were overdone.
“Property and construction stocks are at the forefront of the market, and in a down draft they take a hit,” Hisham Khairy, the Dubai-based head of institutional trade at Mena Corp. Financial Services LLC, said by phone. “It looks like the correction is not fully done and we are heading lower again. The next support level is 3,800.”
None of the regularly traded stocks in Dubai’s 30-member benchmark gauge were trading above their 50-day moving average price yesterday for the first time since June 2012, according to data compiled by Bloomberg. The market’s relative-strength index slumped to 30.9 today from 53.7 at the end of last month. A level below 30 typically indicates to analysts the stocks are oversold and poised for a rebound.

Unlikely Scenario

Dubai’s main index has now entered a bear market eight times since 2008, when the global financial crisis tightened lending, data compiled by Bloomberg show. The month’s loss cut the benchmark index’s estimated price-earnings ratio to 13.4, from a peak of more than 19 in May. That compares with a ratio of 11 for the MSCI Emerging Markets Index, according to data compiled by Bloomberg.
While negative sentiment is driving share price movements in Dubai, a stock market crash is an unlikely scenario, said Ali Khalpey, head of equities at Exotix Partners LLP in London.
“There are some noticeable structural differences between where Dubai is today and where it was six years ago,” he said in a June 26 interview. The emirate’s gauge plunged 72 percent in 2008, the biggest annual drop on record.
The U.A.E.’s exchanges, along with Qatar’s, 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. Abu Dhabi’s ADX General Index today slid 2.1 percent to 4,551.02, the lowest since January, while Qatar’s QE Index (DSM) lost 1.6 percent to 11,488.87, the lowest since March.

Arabtec Stress

Arabtec shares have fallen 61 percent this month, as the builder’s second-biggest stakeholder cut its holding and the chief executive officer resigned before the company said it dismissed a “limited” number of staff.
“The stress Arabtec caused is still lingering in the market, hence the flight from property and construction stocks,” Ahmed Shehada, head of advisory and institutions at NBAD Securities LLC, said by telephone from Abu Dhabi today. “This dip is also driven by Ramadan and the lack of any catalysts before second-quarter earnings.”
Trading volumes declined across the region as the holy month of Ramadan, when Muslims fast between dawn and dusk, started this week. Most employees in the six-nation Gulf Cooperation Council work reduced hours throughout the month.
Emaar’s shares decreased to 8.41 dirhams, the lowest since March 17, while Arabtec’s shares dropped to 2.61 dirhams, the lowest since Jan. 21. Union Properties PJSC fell 9.6 percent to 1.61 dirhams and Deyaar Development PJSC retreated 8.7 percent to 90.5 fils.

FIFA Investigation

Qatar’s shares have slipped 16 percent in June, the biggest monthly decline since January 2009. The country’s right to host the 2022 soccer World Cup may be at risk as a FIFA panel looking into the awarding of the tournament issues its findings into the possibility of corruption in July.
The investigation follows a report in the U.K.’s Sunday Times earlier this month that alleged soccer officials received payments in return for supporting Qatar’s bid. The gas-rich nation, which plans to spend $200 billion ahead of the games, has denied the allegations.