The Wall Street Journal-20080123-Markets- Upheaval Reaches Middle East- Saudi Shares Fall 9-8-- Others Down- Region-s Optimism
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CAIRO, Egypt -- For months, the oil-rich and otherwise booming Middle East appeared an island of tranquility amid growing global economic head winds. But yesterday, stock-market turmoil washed ashore here, too, raising the question: Can the region's economy weather the storm?
The main market index in Dubai, part of the United Arab Emirates, fell more than 6%, and in Abu Dhabi, also part of the U.A.E., shares fell 6.8%. Saudi Arabia's stock market, the region's largest, fell 9.8%. Other markets, such as those in Oman and Qatar, also recorded losses.
The sharp selling, however, was tempered by the fact that the region's exchanges are lightly traded, compared with U.S., European and Asian markets, and prone to sharp, speculative ups and downs. And some of the selling appears to have come from spooked international investors retreating from stock-market slides around the world.
"Many of the international investors were selling down their positions in markets of the region in search for liquidity because they were getting hit in other markets," says Walid Shihabi, head of research with Shuaa Capital, a Dubai-based investment bank.
With oil prices still high, Middle East economies liberalizing and regional, cross-border investment booming, many observers are optimistic that the region's economies have staying power.
"If there is a brief recession in the U.S. economy, yes, things will be affected, but we're in a good position to cope," says Marios Maratheftis, Standard Chartered Bank head of research for the Middle East, North Africa and Pakistan. "Structurally and fundamentally, the Middle East economies are in a healthy state: budget surpluses, current-account surpluses, a diversification program that is ongoing and is very ambitious, and there is an investment boom."
High oil prices have fueled a building boom across the region, from Cairo to Tehran, Iran, and most visibly across a handful of cities in the Gulf, including Dubai and Doha, Qatar. Developers in the real- estate market -- perhaps one of the sectors most vulnerable to a global downturn -- remain optimistic.
Robert Lee, executive director for investment projects at Nakheel PJSC, a developer owned by Dubai's government, argues that the real- estate sector in the Mideast is still vibrant.
Nakheel is developing three palm-tree-shaped islands off the coast of Dubai that include villas and hotels. It also recently completed reclamation efforts for another island development called The World and unveiled last weekend plans for The Universe, where it will market man-made islands in the shape of heavenly bodies like the sun and moon.
"What's happening in the U.S. has not affected the enthusiasm and the progress that is going on in the Middle East," Mr. Lee says.
One big, looming question: Do things get messier if the world goes into a recession and oil demand sags, bringing down oil prices? Many economists think the answer is no, as long as oil prices don't drop drastically.
John Sfakianakis, chief economist at Saudi bank SABB, says even if oil drops from its current level of about $90 a barrel, Gulf economies will be in good shape. Indeed, he expects oil prices in 2008 to hover around the $70-a-barrel range.
"Budgets this year for the big economies, like the U.A.E. and Saudi Arabia, are based on $45 to $48 a barrel. That allows for a lot of cushion," he says.
