By Mahmoud Kassem
March 14 (Bloomberg) -- The three-year boom in Arab stocks is
ending.
Stocks in Dubai, Egypt, Jordan, Kuwait and Saudi Arabia, among
the world's best performers since 2003, are sliding amid a record
number of planned initial public offerings and concern that prices
have outpaced the outlook for earnings growth.
``The greed is starting to turn into fear,'' said Ali Taqi, a
money manager at National Bank of Kuwait, which invests $4.5
billion. ``There are markets like Saudi Arabia where stocks have
run ahead of themselves.''
Arab markets account for five of the 10 biggest declines among
77 benchmark indexes tracked by Bloomberg worldwide in 2006. They
accounted for eight of the 10 largest gains last year, led by the
162 percent rise in Egypt's CASE 30 Index.
Saudi Arabia's Tadawul All Share Index has lost almost a
quarter of its value since reaching a record Feb. 25. It fell 4.8
percent yesterday to reach its lowest level since Oct. 31. All 77
stocks traded fell. Egypt's index has lost 22 percent from its Feb.
1 peak.
The Dubai Financial Market Index, tracking one of the three
markets in the United Arab Emirates, has tumbled 32 percent this
year, the steepest decline. Qatar's main index has fallen 13
percent and the benchmark for Abu Dhabi, the U.A.E.'s other market,
has lost 19 percent. The Jordan General Price Index has slumped 8.4
percent and the Kuwait Stock Exchange index has dropped 8.6
percent.
Buying Frenzy
Investors' rush for the exits follows a buying frenzy last
year that added $650 billion to the market value of Arab stocks.
When Abu Dhabi-based Dana Gas PJSC made its initial share sale in
September, would-be investors broke doors and furniture and beat up
security guards in at least one bank in the United Arab Emirates,
the Gulf News in Dubai reported. More than 33,000 Saudi Arabians
crossed into the U.A.E. to buy the stock.
Now investors are protesting the declines. Hundreds
demonstrated at Kuwait's stock exchange on March 8 and claimed the
market had been manipulated, Agence France-Presse reported. That
day, the Kuwaiti index fell 2.4 percent, its biggest drop in more
than two years. The benchmark has dropped for nine straight days
after surging 80 percent in 2005.
``It made me very sad to see unsophisticated investors selling
at a loss because they are panicking about the possibility of a
fall in the market,'' said Yasser El-Mallawany, chief executive
officer of EFG-Hermes Holding SAE, Egypt's largest investment bank.
The Cairo-based bank manages more than $1 billion.
IPOs
The region's losers this year include Dubai's Emaar Properties
PJSC, the largest real-estate developer in the Middle East, Nile
Cotton Ginning Co., an Egyptian cotton processor, and Kuwait Cement
Co., the country's largest publicly traded cement maker. They have
fallen 26 percent, 42 percent and 15 percent, respectively.
Saudi Basic Industries Corp., the Arab world's largest company
by market value and one of the 20 biggest globally, has fallen 20
percent since the beginning of February. The Riyadh-based chemical
maker, known as Sabic, is valued at $155.6 billion.
To counter perceptions of market weakness, Egypt is sending
top government officials including Prime Minister Ahmed Nazif to a
Euromoney conference in London, starting today. The questions asked
in the program include: ``Is the bubble about to burst?''
Arab countries limit investments by non-residents to varying
degrees. Egypt's market is the largest that's open to international
investment. Saudi Arabia limits trading largely to residents, and
companies in other Persian Gulf monarchies put restrictions on the
amount of stock foreigners can hold.
Close to Home
A record number of share sales may be drawing money out of
existing equities, said Haissam Arabi, head of asset management at
Shuaa Capital, a Dubai investment firm managing more than $2
billion. At least 100 Middle Eastern companies are planning to go
public this year, double the number last year, according to ABQ
Zawya Ltd., a business-information service in Dubai.
``Some markets are falling because investors are selling
shares to buy into initial public offerings,'' Arabi said.
Arab companies raised about $6 billion in share sales last
year, more than double in 2004, according to Global Investment
House, a Kuwait-based investment bank.
The total value of stocks in Tunisia, the U.A.E., Jordan,
Lebanon, Qatar, Kuwait, Oman, the Palestinian Authority, Egypt,
Saudi Arabia, Bahrain and Morocco more than doubled in 2005 to
about $1.3 trillion, according to data compiled by Bloomberg and
statistics from the Palestinian stock exchange.
The gain was driven by record oil prices and tighter U.S.
controls on capital flows that prompted many Arab investors to keep
money closer to home. Crude oil in New York set a record high of
$70.85 a barrel in August and is trading around $60, more than
double its 2003 low.
Saudi Slowdown
Saudi Arabia, the world's biggest oil exporter, probably
generated $163 billion of oil revenue last year, according to Samba
Financial Group, the country's second-largest bank. The total was
the highest in more than two decades.
The country's stocks trade at 38.6 times estimated earnings on
average, according to a March 2 estimate from Shuaa Capital. That
exceeds the price-earnings ratio of 20 for Egypt's CASE 30 and 13
for Morgan Stanley Capital International's Emerging Markets Index.
The Saudi market may lose between 24 percent and 40 percent
from its peak during the next six months, Shuaa Capital analysts
predicted in a report this month.
Investment banks such as ING Wholesale Banking and Credit
Suisse Group say this year's drop in the Egyptian stock market is a
buying opportunity. They've recommended buying Egyptian stocks in
the past month.
Egypt's economic growth will accelerate to 6 percent this year
from 4.8 percent in 2005, according to the International Monetary
Fund. Orascom Telecom Holding, the biggest mobile-phone company in
the Mideast, has plenty of room to grow because of low penetration
rates in its markets, ING said Feb. 21.
``We will see more government reforms in Egypt that will make
the market a very attractive emerging market play,'' EFG-Hermes's
El-Mallawany said.
--With reporting by Dania Saadi in Cairo. Editors: Serafino
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