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Tue 20 Jan 2009 10:29 AM

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Gulf markets slump to fresh multi-year lows

UPDATE 6: Most Arab bourses end in red after bellwether company posts dismal profit.

Gulf stocks sank to multi-year lows on Tuesday as investors saw a dive in profit at Saudi Basic Industries Corp (Sabic) as a sign that the region was not as immune to the global downturn as they had thought.

Petrochemicals giant Sabic became the latest firm in the world's biggest oil-exporting region to drastically miss analysts' forecasts with a surprise 95.5-percent plunge in fourth-quarter profit.

Sabic shares tumbled 9.8 percent, leading declines on all seven bourses in the Gulf, where benchmarks fell as much as 72 percent last year amid a collapse in crude prices that brought a regional economic boom to an end.

"Sabic is a bellwether stock not only in Saudi Arabia but for the entire Gulf, and markets will take a cue from it," said Shakeel Sarwar, head of asset management at Bahrain-based SICO investment bank.

Sabic, which produces petrochemicals, plastics and steel - attributed the fourth-quarter drop to the global slowdown, and said it would shut plants and cut jobs.

"Profits from Gulf petrochemical companies to banks are all showing that it is very clear and evident that the global financial crisis has hit the region directly in terms of corporate earnings," Sarwar said.

Saudi Arabia's main index TASI fell more than two percent as Saudi Basic Industries Corp (Sabic) slumped almost ten percent after posting a bigger-than-expected drop in fourth-quarter profit.

Sabic retreated 9.8 percent, dragging the benchmark TASI down 2.41 percent to 4,544 points.

Samba Financial Group dropped 9.45 percent.

Economic growth in the Gulf region is expected to slow to just above zero in Saudi Arabia and the United Arab Emirates this year, according to some economists, as oil prices fall below $33 a barrel, less than a quarter of a peak last July.

Gulf policymakers are struggling to defrost credit markets with interest rate cuts and emergency liquidity, but investors are wary as property price corrections, especially in Dubai, raise the risk of defaults on mortgage and consumer loans.

"Volatility will continue to be the name of the game," said Haissam Arabi, chief executive at Gulfmena Alternative Investments, a regional specialist hedge fund company under formation.

Markets in the United Arab Emirates and Qatar slumped to their lowest closes in about 4.5 years, while Kuwait's benchmark KWSE retreated more than two percent to its lowest close in almost four years. Oman's index MSI shed 6.29 percent to a 3.5 year low.

"Markets are building a doomsday scenario since we don't have any numbers to decide on how 2009 is going to be. A major material impact like Sabic's results is a gauge. People start fearing about blue chips in their own countries," Arabi said.

In Qatar, investors grew more anxious about how Industries Qatar, which runs business lines similar to Sabic's, would fare in the quarter. Analysts in a Reuters survey last month were projecting profits to rise.

Last week, Qatar National Bank, the Gulf state's biggest bank, posted a 0.8 percent drop in quarterly profit as it booked provisions for bad loans.

"Sabic is definitely a reflection of what Industries Qatar will suffer in the fourth quarter," said Rami Sidani, head of investment for the Middle East and North Africa at Schroders.

"This is a global slowdown. There is a lack of good news and nothing is pointing to any type of recovery at this stage." (Reuters)

Arabian Business digital magazine: read the latest edition online

SR 11 years ago

UAE market drop may have been "triggered" SABIC sell-off but that is not the reason. There are far more greater fundemental issues especially related to the real estate sector. It's time they come out with real facts and address these issues, otherwise market will continue the freefall!