Fascinating discussion on the cratering of the Middle Eastern bourses, and what the impact could mean socially in the region:
WSJ:
"The Persian Gulf’s highflying stock markets, suffering their first serious correction after years of gains, are raising concerns that a speculative bubble may burst and hurt emerging markets more broadly.
Fueled by cash from high oil prices, stock markets in Dubai, Kuwait, Abu Dhabi and elsewhere in the Gulf have tripled or more in value in the past three years. But in recent weeks, these stocks have suffered double-digit losses, with Saudi Arabia, the region’s biggest stock market, shedding about a third of its value since late February.
The declines underscore the risks of emerging-market investing at a time when U.S. investors, from individuals to pensions and hedge funds, are investing more overseas. Emerging-market stock funds world-wide have received $20 billion in new money, or inflows, this year, matching the total inflows for all of 2005, a record year, according to EmergingPortfolio.com Fund Research.
Analysts say the selloff in the Gulf shows few signs of spilling over broadly to other developing countries — as happened in 1997 when a currency crisis in Thailand sparked broad losses throughout Asia, or when Russia’s debt default the following year roiled global markets — because few investors outside the Gulf own its stocks."
I always find it fascinating trying to locate the pin that pricks the balloon, even if its after the fact:
WSJ: "The run-up in Gulf stock-market prices draws comparisons with the surge in Internet shares in the late 1990s. Seven different markets in the region more than doubled last year, despite formidable restrictions on foreigners that keep most overseas investors away. In Saudi Arabia — the largest Gulf stock market and the one where investor borrowing has been heaviest — the market doubled in value last year and has surged nearly sevenfold since 2002. In Qatar, Islamic bank Al Rayyan Bank filled a sports stadium in Doha with tens of thousands of investors hoping to participate in its IPO.
Some say the selloff was sparked by a rule change in the Saudi market that lowered the maximum one-day fluctuation for a stock to 5% from 10%. Analysts say investors interpreted this as a sign authorities were getting nervous about the market’s vertiginous level. Others say the collapse of a deal by Dubai Ports World, which is backed by the government of the U.A.E., to take over operations of some U.S. ports hurt investor sentiment."
Source:
Mideast Feels Stress of Stock Slide
Drop Threatens Oil-Fueled Gains And May Hurt
Emerging Markets; Scrambling to Avoid Burst Bubble
CRAIG KARMIN and YASMINE EL-RASHIDI
WSJ, March 27, 2006; Page C1
http://online.wsj.com/article/SB114341741039508615.html
Unwinding
This WSJ article that Barry Ritholtz talks about has a lot more between the lines than Arab stock markets. FYI, at the time of the last oil boom in 1980 Kuwait experienced a similar bubble and subsequent crash. The unwinding in my view has com
Good question for you… who do i have to [explitive] to get an ETF that tracks large western like mid-east city based companies (like those in Dubai)…
You mean, a low-fee ETF. You don’t want the old EME resurrected and sucking down your assets at 2% a year, do you?
The answer, I’m afraid, is DIY. There isn’t even a good, low-fee, non-US government-bond ETF yet, and that would seem a huge market. You’re not going to see a middle-east city ETF before you see that.
The only reason i ask for companies based in these specific cities (cairo, dubai, etc)… is because the nations themselves typically have much more lax and capitalistic laws regarding commerce but only for those specific cities… ala Hong King / China. Dubai / UAE