Stocks in Dubai plunged in the worst day of selling since the 2o08 financial crisis, on a mixture of uncertainty over developments at the market’s most active stocks and ongoing fears of instability in Iraq.
Dubai’s market has staged a spectacular rebound since its over-leveraged, construction-led economy shuddered to a halt in 2008, thanks to support from oil-rich local investors and loose monetary policy in the world’s major economies. However, it has failed to convince international investors that it has seriously addressed the hothouse atmosphere, exposure to real estate and mixed corporate governance that made it so vulnerable in the past. Concerns have been rising for months that both the economy and its stock market were overheating again.
Leading the declines Tuesday was construction company Arabtec, which fell by its daily limit of 10% for a second successive day. The stock had appeared to be a one-way bet as long as Abu Dhabi’s Aabar Investments, an arm of the oil-rich emirate’s national petroleum company, was building a stake in it.
Aabar is more familiar as a shareholder in Tesla Motors Inc. (TSLA) and the Virgin Galactic space tourism project of UK tycoon Richard Branson, as well as being a major shareholder in Germany’s Daimler AG (DDAIF), the maker of Mercedes-Benz cars. It had accumulated a stake of over 21.5% in Arabtec through a number of intermediaries, sidestepping market disclosure rules.
Aabar had managed to take control of Arabtec despite only having a minority stake, but said last week it had cut its stake to 18%, throwing market participants for a loop. They also reacted badly to news of the departure last week of chief executive Hasan Ismaik, which was followed by rumors of wholesale redundancies at the company. The market took that to mean that Aabar was abandoning plans to build it up into something with international scale.
Abu Dhabi-based newspaper The National cited a statement from Aabar Tuesday confirming “termination of a limited number of staff”, and saying that “all decisions taken…are aimed at the protection of the rights of shareholders and investors.”
Arabtec has now lost 48% this month but is still, remarkably, up 69% this year. The overall Dubai index is now technically in bear market territory, having fallen over 21% from its recent peak, but is also still up 27% so far this year.
The news comes against a backdrop of increasing nervousness about developments in Iraq, where extremist Sunni militiamen have now taken control of a key oil refinery north of Baghdad and appear on the verge of launching an assault on the capital.