Stocks in Dubai are officially in a bear market. The Dubai Financial Market General index slumped by 8% last Tuesday, and has lost around 25% in six weeks. Upheaval at Arabtec, one of the Middle East’s biggest construction groups, was the immediate cause of the latest slide.
What the commentators said
Arabtec “appears to be suddenly rather light on executives”, as Joseph Cotterill put it on the FT Alphaville blog. Rumour has it that the chief operating officer, the chief information officer and the chief risk officer have all been sacked. But the turmoil is just a trigger for general profit-taking. Having climbed by 270% in just two years, investors feared the market had become disconnected from the fundamentals. Property prices in some areas have rebounded by 50% in 18 months, fuelling fears of another bubble exploding (as in 2008). Trade and growth have surged in the past two years.
But the market is still up 20% or so for the year. And valuations had also been driven up ahead of index provider MSCI promoting Dubai from ‘frontier’ to ‘emerging market’ status earlier this year, said Fahd Iqbal of Credit Suisse. Investors who bought in advance of the reclassification are now taking profits, but more money is likely to head into the (still very small) market as funds that cannot invest in frontier markets pour in, particularly as the market’s valuation is now in line with the MSCI World index.