A marked increase in volatility combined with seasonally low liquidity, led to a loss in the equity markets across the region in August 2008.

These factors, along with a spate of negative publicity on the Dubai real estate market and foreign investors withdrawing funds, resulted in a loss of close to 4.3 per cent for the broad market index according to a report from leading regional investment banking firm Rasmala.

Markets such as the UAE, Egypt and Qatar experienced much higher losses in a month that saw the negative sentiment that started to appear in regional markets in July accelerate in August.

"Foreign and domestic investors who were expecting an imminent revaluation of GCC currencies have given up and therefore funding costs around the GCC have been increasing as investors repatriate their funds.

"Foreign exchange markets are not forecasting any appreciation or adjustment of the dollar peg," said Khaled Al Masri, partner, Asset Management at Rasmala.

“This drastic fall in markets was also caused by a withdrawal of foreign funds from the UAE, Qatari and Omani markets, as well as a free fall in well regarded and widely held real estate stocks in Dubai.

The best performer this month however was the Saudi market. It responded favourably to the decision to liberalise foreign investors access to the market through equity swaps – a move which provided a much needed boost to the market."

The Saudi market started off the month on a weak note when the index plunged for two consecutive days by around seven per cent, due to news that the exchange would publish names of shareholders with stakes of five per cent or more in listed firms to boost transparency.

However, a remarkable turnaround later ensued with the market advancing by over 12 per cent from it’s lowest levels, in large part due to the CMA’s decision to allow foreigners to enter into equity swaps on individual Saudi stocks with CMA approved firms.

The DFM ended the month at 11.88 per cent lower, making it the worst performing regional market for August.

The ADX was also affected by the negative outlook and stood at a loss of 11 per cent at the end of the month, as both real estate and banking stocks came under pressure. The National Bank of Abu Dhabi lost all its year-to-date gains and slipped into the red and First Gulf Bank lost over half of its 35 per cent year-to-date gain.

The Kuwait market, although continuing its downtrend, fared better than other regional markets and is thus far the best performing GCC market in 2008.

The Omani, Qatari and Egyptian markets all slipped further, ending the month at a loss of 11.5 per cent, 11 per cent and 8.5 per cent respectively. - TradeArabia News Service