Foreigners shun safest of Gulf markets amid unrest
Local institutions buying but impact seen limited.
February 24, 2011 3:59 by Reuters
Foreign investors are shedding positions in key Gulf markets considered immune to the political unrest sweeping the Middle East and local state institutions are running out of firepower to stem the slide.
Foreign investors were net sellers this week in Qatar and Oman — considered least likely to see contagion from the turmoil — and local institutions have been buying, bourse and broker data show.
Selling has been more evident in widely-held bluechip names, which are more easy to exit during crisis due to ample liquidity.
Bank Muscat , Oman’s largest lender, has fallen more than 9 percent so far this week. Chemical maker Industries Qatar (IQ), the largest company in Qatar by market value, fell 7 percent in the last five working days.
Qatar National Bank (QNB) has plunged nearly 10 percent and Galfar Engineering 12 percent so far in the week.
“Foreigners are shying away from regional equities. Local institutions are trying to take advantage of the drop but if events turns more negative in MENA region, then risk aversion is bound to rise,” said one Muscat-based fund manager.
“Markets are attractive based on current valuations which is interesting local investors.”
Countries like Qatar and Oman were thought to be largely immune from the political crisis and foreign interest for stocks in the region seen higher backed by strong economic growth and increased government spending.
Qatar’s benchmark was the top-performing Gulf Arab market with a 25 percent gain, while Oman’s index rose 6 percent.
“Following the boost we saw in Qatar after the 2022 World Cup bid, foreign investors are now severely backing out,” said Haissam Arabi, chief executive and fund manager at Gulfmena Alternative Investments.
With the crisis not showing any immediate signs of abating, brokers are seeing more selling interest from foreign institutions who are worried that the contagion effect of the crisis may spread to other regions in the Gulf.
“Our orders today were skewed to the sell side again – by about 80 percent with a high concentration in Oman,” a Bofa-Merrill Lynch trader’s note on Wednesday said.
“Shorting request in Oman is gaining ground by the day as hedge funds speculate this could be next country to protest or at least correct,” the note said.
Investor woes may be heightened by the fact that the ability of local institutions in the region to step in as buyers to prevent market falls is limited unlike in most other developed markets.
Gulf markets, though home to some of the world’s richest sovereign wealth funds and backed by oil money, see very little participation by institutions in local markets.
“Local investors or institutions stepping in is not common here,” Arabi said.
“Of course, they have the resources. In countries like Qatar and Kuwait, sovereign wealth funds could be injected into the market to stabilise.”
Institutions have amassed large portfolios of foreign holdings over the years but are under no commitment to step in as buyers in the local markets when there is a sharp drop.
(Reporting by Dinesh Nair and Praveen Menon; Editing by Jon Loades-Carter)