The market capitalization of 16 Arab bourses was valued at $862 billion on March 4, compared with $1.002 trillion on Jan. 25, a day prior to the political crisis in Egypt that triggered unrest across the Middle East, Reuters quoted a report from the Arab Monetary Fund on Sunday.
Arab stock markets gained about 9 percent in 2010 with their market capitalization touching $983.8 billion, the report from the Abu Dhabi-based fund said.
“The current situation offers uncomfortable echoes of the post-Lehman Brothers period when a bout of investor panic led to significant value destruction that bore little relation to economic fundamentals in a region that was soon to emerge from the crisis far more unscathed than its peers,†said Jarmo T. Kotilaine, chief economist at the National Commercial Bank.
Once again, he said, we are seeing investor behavior that largely disregards the underlying strength of the regional economy due to an overreaction to uncertainty. From the perspective of the GCC bourses, this continues a frustrating pattern of relative under-performance as attractive fundamentals are countered by investor malaise, whether as a result of economic or socio-political anxieties.
The risk, of course, is that the malaise lingers for an extended period, continuing in some ways a structural downtrend that began after the 2005-2006 bubble corrected. “The challenge for the region is to redouble efforts to address both the temporary and the structural causes of this underperformance,†Kotilaine added.
He said right now there is an acute need for effective communication of the attractive fundamentals and the solid economic prospects of the region, as well as of the various policy efforts underway to boost development. Most of them are ongoing and of relatively long standing, rather than merely reactions to the crisis. In structural terms, the crisis highlights the risks of retail investor-dominated bourses and a lack of investor education.
These problems do not have immediate solutions but that only increases the urgency of intensifying the efforts currently underway to foster the maturation of these markets.
The losses in just over a month are far more than what the markets gained in 2010, an AMF official said.
Initial public offerings (IPOs) resumed a slow recovery in the Arab markets with 27 issues in 2010, raising $2.75 billion compared with 17 issues valued at $1.98 billion the previous year, the report said without giving details.
Foreign investors have been net sellers in the Arab stock markets in the first-quarter this year as most shied away in the last few weeks due to the regional turmoil, the report added.
Gulf Arab markets, however, rose on Sunday, with the Dubai and Kuwait benchmarks pulling away from six-year lows to track gains a day earlier on Saudi Arabia’s bourse, the region’s largest.
The Kingdom’s Tadawul All-Share Index rose 0.92 percent to 5,762.5 points after surging 7.3 percent on Saturday. The Saudi stock market turnover reached SR5.60 billion on Sunday, the Financial Transaction House said in its daily market report.
Dubai’s index made its largest gain in four weeks, rising 2.7 percent to 1,389 points. Kuwait’s index rose for a first session in four to close 0.7 percent higher at 6,190 points.
Abu Dhabi’s index gained 1.1 percent to 2,558 points. The Omani index climbed 0.8 percent to 6,404 points. Bahrain’s index surged 1.3 percent to 1,396 points.
