A plunge in oil prices coupled with a 7% drop in the Chinese stock market dragged the UAE’s equity indexes on Thursday, with the Dubai Financial Market index falling as much as 4%.
The DFM index ended the day 3.42% lower to reach 2,966.43 after hitting a low of 2,947.69 shortly after noon. The Abu Dhabi Securities Exchange general index, which is typically not as volatile as Dubai’s index, also took a dive of 3.16% to reach 4,134.97, Albawaba reported.
Share prices were strongly in the red, with Emaar leading the losses in Dubai. The powerhouse accounted for 21% of the total trade value in Dubai, with its share prices sliding 5.355.
The sell-off comes on the back of oil prices, which reached new lows of $33 a barrel—the lowest since 2004. Chinese stock markets were another trigger for the global drop in equities, as trade was suspended for the second time this week after the CSI300 index fell 7% shortly after opening on Thursday.
Tariq Qaqish, managing director of asset management at Al Mal Capital, said that geopolitical tension was adding to an already-negative sentiment among investors.
“I think the most important factor today is the oil drop and China is a related story to oil prices. I think the Chinese will continue to try to stimulate their economy, but it’s not easy. Some of the measures they have taken to control the market crash so far did not work,” Qaqish said.
He added that he did not expect valuations in UAE equities to prompt buying activity at this stage as they are overshadowed by macroeconomic factors.
Qaqish pointed that higher interest rates spurred by a hike from the US Federal Reserve will also hurt liquidity. With the dirham being pegged to the US dollar, investors might look at other markets to allocate their assets.
Markets Plunge
Despite the fact that the UAE’s markets are oversold at this stage, Qaqish said there were no buyers due to negative sentiment and lower liquidity.
On DFM where almost all stocks fell, Arabtec dropped 4.17%, Gulf Finance House ended 3.16% lower, and Dubai Islamic Bank declined 5%. Amlak and Air Arabia also fell 3.88% and 2.26% respectively.
Given the plunge in markets, there were only three gainers across ADX, starting with National Marine Dredging Co. which jumped 14.78%, almost reaching the 15% daily cap for an increase.
It was followed by Abu Dhabi Ship Building, up 11.94%, and National Bank of Ras Al Khaimah, which was up 0.82%.
Of the 33 stocks traded on DFM, 29 went down, two went up, and two remained unchanged. Of the 26 stocks traded on ADX, 20 declined, three advanced, and three remained flat.
Egypt Wants to
Protect Local Industries
In response to the recent dollar crises in Egypt, the government aimed to limit “non-essential products” and came up with methods to control imports with the aim of “protecting the local industry”.
The ministry of industry and foreign trade published a list of imported products Sunday that will be banned starting February, unless their factories register in the General Organization for Import and Export Control, which is affiliated to the ministry, Albawaba reported.
The list is comprised of 23 categories of products including dairy products, canned fruits, cooking oil, and chocolates and products that include cocoa, sugary products, baked products, and fruit juices.
Banned products also encompass cosmetics, soap, carpets, kitchen tools, tubs, baby diapers, feminine hygiene products, ceramic products, glass tools, armatures, home appliances, home and office furniture, bikes and motorbikes, watches, lightening devices, and toys.
Egypt is suffering a severe lack of the dollar currency and a continuous decline of the pound’s value against foreign currencies, which significantly increased the imports bill and further burdened the Egyptian pound.
Egypt’s dollar crisis, which has worsened in 2015, was attempted to be resolved by appointing a new Central Bank of Egypt Governor Tarek Amer. He addressed the issue by setting a new policy regulating the procedure by which importers are provided with foreign currency through domestic banks.
100% Cash Margin
According to the policy, only those imports where foreign financial institutions issue collection documents directly to banks operating in Egypt will be allowed. Collection documents that are provided by the importer to the Egyptian bank will be declined.
CBE’s instructions also include obliging banks to acquire a 100% cash margin on letters of credit, which encourages funding of commodities for commercial companies or governmental bodies instead of the 50% that was applied before.
CBE excluded the import of medicines, vaccines and related chemical materials, and baby formula from the cash margin.
During the press conference in late December during which Amer announced the new regulations, he blamed citizens for consuming “luxurious” products, which consequently increases the import bill.
As an example, Amer explained that Egypt spends $194 million on imported women nightgowns, $103 million on imported women suits, $159 million on imported women tops, $272 million on imported kids clothes, and $40 million on men’s trousers.
The category that Amer mentioned is a subcategory in the CBE annual report on imports.
According to CBE’s latest figure on imports in the previous fiscal year, the imports of fuel and mineral oils registered $10 billion compared to $8 billion for raw materials, $16.4 billion for intermediate goods that serve as inputs in the production of other products, $10.3 billion for the means of production, $4.3 billion for home appliances, and $9 billion for non-durable goods under which falls the ready-made clothes sub-category.
In an attempt to curb the rise in imports, the government also announced a cooperation program with CBE in November to link the amount of cash that importers obtain from the banks to the bills they submit to the customs authority.
