The performance of Arab stock markets so far this year has been disappointing. In 2000, only Tunisian and Saudi shares closed the year with positive gains. The first quarter of 2001 has shown little improvement with only four of the 12 markets ending the first three months of the year up (Kuwait, Morocco, Jordan and the UAE) while the remaining markets recorded losses ranging from a high of 23.5 percent for Egypt to a low of 0.3 percent in Saudi Arabia.
Several factors have contributed to the regional markets’ decline.
The turmoil in the global equity markets, led by the US NASDAQ, which is down 25.5 percent so far this year, has also restrained appetite for equity investments in the emerging market, including those in the region. On a more general level, the lack of transparency, the absence of large capitalized companies, and limited privatization activity have all contributed to the continued weak performance of the Arab stock markets.
Nonetheless, a stronger commitment to reform has paid off in a number of Gulf stock markets. Moreover, lower US and Gulf currencies’ interest rates and the slump in international equity markets, particularly in the US, has seen some large Gulf investors returning to their local stock markets in search for higher returns.
In particular, the Kuwait Stock Exchange rose from a five-year low in mid January to close the first quarter of 2001 with gains of 8.5 percent, qualifying it as the best performer among Arab stock markets so far this year. The market rallied in February and March on the back of renewed investor optimism in long-awaited economic reforms following the resignation of the old cabinet in late January. Moreover, the Central Bank of Kuwait followed the move of the Federal Reserve in the US and cut the discount rate on the Kuwaiti Dinar three times so far this year by a total of one and a half percentage points to 5.75 percent which has resulted in higher liquidity levels in the market. UAE stocks also registered positive gains at the end of the first quarter of this year with the NBAD index up 5.7 percent on its level at the beginning of the year. Gains were concentrated in January reflecting strong corporate results, but activity has since then tapered off.
The behavior of Saudi stocks, on the other hand, has to some extent mirrored the uncertainty on the international oil markets over the past few months with the NCFEI index fluctuating in the first quarter of 2001 to close down by a marginal 0.3 percent. Elsewhere in the Gulf, Bahrain recorded the largest losses among the Gulf countries, down 9.0 percent in the first three months of the year on the back of disappointing corporate results and losses in market heavy weight Bahrain Telecommunications Co. following news that the government has planned to end the company’s monopoly of the telecommunications sector. The Muscat and Doha stock markets also ended the first three months of 2001 lower with losses of 7.4 percent and 3.7 percent respectively. The Gulf markets are expected to adjust higher in the months ahead, reflecting a more confident private sector and further declines in domestic interest rates.
Egyptian stocks have witnessed the steepest decline among Arab stock markets, down 23.5 percent in the first quarter of this year.
The market was undermined by the gradual decline in the Egyptian pound’s exchange rate vis-a-vis the dollar and was particularly sensitive to the slump in global equity markets, losing over 10 percent in the first three weeks of March.
The Casablanca stock exchange posted the second best performance among Arab stock markets in the first quarter of 2001 with gains of 4.5 percent following two years of successive declines, boosted by strong advances in blue chip firms and a series of government measures to revitalize the stock market.
Tunisia, on the other hand, the region’s star performer last year has entered a correction phase. It ended the first quarter of this year down 7.6 percent on the back of heavy losses by a number of market heavyweights.
The Palestinian Stock Exchange has maintained the downward trend that started in the last quarter of 2000 undermined by the escalation of violence in the territories with the index down 19.7 percent on its level at the beginning of 2001.
Beirut stock exchange was also affected by the regional political instability and rising fears of a financial crisis. The exchange has been on a steadily declining trend since the beginning of the year, falling by 4.7 percent, 5.4 percent, and 6.0 percent in the first three months of the year respectively to a total loss of 15.2 percent.
The Amman Stock exchange ended the first quarter of 2001 with positive gains of 4.1 percent, despite the market’s traditional sensitivity to regional uncertainties. Following last year’s 20.5 percent fall, several stocks represented attractive buys, encouraging the return of some investors to selective stocks in the first quarter of the year.
