Regional equity markets fell as oil prices hovered around US$35 dollars a barrel and concerns grew that recent market declines have taken a toll on the portfolios of insurers and financial services companies in the region. The Dubai Financial Market (DFM) was down 1.40 per cent yesterday, closing at 1,587.08, while the Abu Dhabi Securities Exchange (ADX) fell 1.91 per cent to settle at 2,281.86.
Shares of property and banking firms accounted for much of the declines, but analysts expect knock-on effects in other sectors, including insurance. When customers pay their insurance premiums, the insurance firms take the funds and invest them in a variety of asset classes and analysts believe the market is displaying a concern that these investment portfolios - which often include shares of property and banking firms - will suffer heavily due to market conditions.
"Share price falls may be reflecting concerns about the investment portfolios of insurance companies showing significant losses," said Ali Khan, the director of Arqaam Capital. Takaful House, an insurance company that debuted on the DFM in early August, fell 8.57 per cent yesterday to close at Dh0.96. Similarly, Al Wathba Insurance Company and Al Khazna Insurance Company, both listed on the ADX, declined 9.94 per cent and 9.26 per cent respectively.
The negative market sentiment has now spread to shares of telecommunications companies, which have out-performed benchmarks over the past few months. The UAE's second-largest telecommunications provider, du, fell 6.22 per cent to close at Dh2.11 on the DFM, down nearly 26 per cent from Dh2.86 at the start of the trading week. Etisalat was down 1.92 per cent on the ADX yesterday, closing at Dh9.71. It has declined nearly 19 per cent since the start of the trading week, its price dropping from Dh12 on Sunday.
"It is surprising to see the share prices coming under pressure in this manner because there is nothing fundamentally wrong with [telecommunications companies]," said Mr Khan. "It is just generally weak sentiment. We are seeing rotational plays of selling from one sector to another." Analysts said that a high level of correlation exists among all the stocks, causing companies to follow the drops in share prices of property and financial services share prices this week.
"Investors are still very nervous and skittish so they are cashing out even though assets are selling at depressed prices," said Fahd Iqbal, a research analyst at EFG Hermes. Shares of property and construction companies continued their steady decline with Union Properties shedding another 7.89 per cent on the DFM yesterday to close at Dh0.70. Arabtec Construction rallied 14.98 per cent to close at Dh3.99 yesterday, reacting to news of shareholders approving the issuance of one-for-one bonus shares on Wednesday. The shareholders also approved the allocation of part of retained earnings to the legal reserve to nearly double the company's capital to 1.19 billion shares from 598 million shares, according to a statement on the Dubai bourse website.
"The positive news was well received by investors, especially retail investors. It just takes a day or two to react," said Mr Khan. Markets across the Gulf declined slightly yesterday, with Saudi shares falling 1.58 per cent to 4,669.05 amid oil price fears. Oman's Muscat Securities Market 30 Index was down 3.87 per cent to settle at 4,998.12, while Kuwait's stock exchange declined 1.97 per cent to 8,240.70. Bahrain's All Share Index fell slightly to 1,832.80, declining 0.50 per cent yesterday. Qatar's stock exchange inched upwards, rallying 0.02 per cent to 6,635.60.
shamdan@thenational.ae