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Stock markets across the GCC tumbled at the news of unrest in Egpyt. Saudi Arabia’s stock exchange tumbled by over 6 percent Saturday, setting the stage for other regional markets to drop as concerns mounted about the violent protests in Egypt that presented the most serious challenge to President Hosni Mubarak’s roughly 30-year rule.

 

The Saudi stock benchmark Tadawul slumped 6.43 percent to 6,267.22 points at close. The market in Saudi Arabia, where the start of the workweek is Saturday, was the first to react to the violence in Egypt and the drop in the TASI offered a window into the potential battering that could emerge when other regional markets reopen Sunday.

 

All Saudi stocks end in the red. Petchems are among the top losers. Bellwether SABIC fell 7.5 percent at SR97.75.

 

The Dubai Financial Market also shed over six percent of its value at the opening of trading week, with the DFM index dropping to 1,505.62 points. The leading traded company, Emaar Properties, saw its share price plummeting by nearly 10 percent, the maximum allowed by the market regulations. Emaar, which built the world's tallest tower, Burj Khalifa, in Dubai, has various projects in Egypt. Air Arabia also saw its share plunge by nearly 10 percent. The Middle East's largest low-cost carrier has a hub in Egypt for its local joint venture Air Arabia Egypt. Arabtec leading construction firm, which also has projects in Egypt, was also among the companies leading the plunge on DFM, with a 9.5 drop.

 

Neighbouring Abu Dhabi Securities Exchange was down 3.74 percent. Etisalat telecom company, which operates in Egypt through Etisalat Misr, was trading 3.35 percent down in early trading. Kuwait Stock Exchange, the second-largest Arab stock market after Saudi Arabia's, also dropped by over 2 percent.

 

Qatar Exchange was down by over 4 percent.

 

January 28, 2011

 

 

Analysis and Forecast: Increasing Risk


 

Stock markets across the GCC have plummeted in response to the Egyptian riots. There are a number of reasons why specific stocks or stocks in general will be affected, as summarized below:

 

  1. A number of large listed companies across the GCC have significant business interests in Egypt. These include companies in multiple sectors including telecommunications, financial, construction, real estate, energy and others. Arabtec, Air Arabia, Emaar and Etisalat in the UAE are examples;
  2. In addition, Egyptian companies and individuals have significant stakes in those companies. Although it will be difficult to gauge the percentage of those deemed too close to the Egyptian regime who have interests with GCC companies, what can be said with certainty is that many of the large business interests will involve personal interests of members of the current regime. With an increased likelihood of the regime collapsing, those will likely be closely scrutinized by an new regime for possible corruption. It will be impossible to predict what could happen to those interests, except that there will be a period until any disputes are resolved;
  3. Increasing political instability in Egypt- the Arab World's largest and most influential country, will likely lead to a replication of reform calls in other Arab countries, including the GCC and Yemen;
  4. Egypt's strategic position may impact GCC trade, including oil;
  5. A new Egyptian regime may be more sympethetic to Iran, the GCC's arch-rival;

The combination of political and economic events in Egypt will likely continue to impact economic and political stability across the GCC and Yemen. The longer it takes to resolve those, the more serious will the impact be.

 

Below is the movement of the Abu Dhabi market. The fall shown is the first day of trading after the Friday demonstrations. The same pattern was replicated in the other GCC markets.

(Source: The National)