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Syrian crisis sparks crash in Gulf markets
August 28, 2013, 1:17 pm

A recent escalation in the crisis in Syria proved to be the catalyst that eventually led investors to sell off stocks in Gulf markets and cash in on the enormous profits recorded this year, analysts said.

On Tuesday, Dubai Financial Market (DFM) plummeted 7.01 percent to 2549.61, its largest one-day loss since the November 2009 debt crisis and the most significant market decline globally.

The decline came despite fundamentals remaining strong and the emirate’s property market continuing to soar.

Saudi Arabia’s Tadawul All Share Index lost more than 4 percent, its most significant market drop since August 2011.

In Kuwait, stocks also plummeted 6 percent, with numerous stocks falling by more than 8 percent.

Comments by US Secretary of State John Kerry that indicated America was poised to interfere in the Syrian conflict were blamed for the dramatic sell off.

The UK also recalled its parliament to vote on a response to the crisis on Thursday, while France said it would not “shirk its responsibilities” to act in Syria.

However, analysts said reaction in the Gulf had been far more pronounced compared to other major trading cities including New York because investors had been waiting for some negative sentiment to encourage them to bank the huge paper profits earned this year.

DFM had risen by more 60 percent since January, making it one of the best profit markets globally, while the Tadawul also had climbed 18.43 percent in the past year.

“Syria is obviously connected to what’s happening but it’s tough for me to imagine it’s the only reason for the 7 percent drop,” Shuaa Capital vice president of asset management Amer Kahn told Arabian Business.

“It’s very natural for investors through the year, as they make more and more money, to be a little more cautious if there’s something that might turn sentiment to negative to take their profit and sit on the sidelines.

“In Dubai there were a couple of enormous margin calls as well, which would have exacerbated the problem as well. Investors looking to sell would see the prices and sell a bit more discriminately than otherwise.”

Yassir Mckee, wealth manager at Qatar's Al Rayan Financial Brokerage, agreed that investors had over-reacted.

"Politically, the region is a mess and concerns of war in Syria are high," Mckee told Reuters on Tuesday.

"But the extent of the drop doesn't make sense and people are over-reacting because local fundamentals are strong and even if there is a war, I don't see it significantly impacting Gulf countries."

London Business School Professor of economics Richard Portes said comments by the US Federal Reserve in June that suggested it would wind down its “easy-money” policy also had contributed to Dubai’s market fall.

“All emerging markets have become much more volatile since June, when the US Fed suggested its monetary policy might tighten. Last week India and Indonesia, today Dubai,” Portes said.

“Their geopolitical instability (Syria, Egypt) adds to financial instability.

“The road ahead will continue to be rocky.”

Other analysts said Syria would remain influential in whether the markets continued to fall or recovered on Wednesday.

“I think since the catalyst has been clear, everybody’s eyes are going to be on what’s happening in Syria,” Kahn said.

“I presume if there is some sort of US-led coalition strike in Syria we’ll most likely remain in caution mode and you might see a little more selling in the market and if that’s not the case investors will return firmly because the underlying fundamentals in the GCC haven’t changed at all.

“Eventually this may turn out to be a great buying opportunity.”

By comparison, stock markets in major cities declined only marginally.

The London Stock Exchange, on which many Middle East companies are listed, was down only 21 points to 3435 an hour before close, while New York’s S&P500 was down less than 1 percent following the Obama administration’s comments.

The Australia Stock Exchange managed to regain all of its early losses on Tuesday, which had been attributed to Syria.

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