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Mideast Markets Reel as Egyptian Unrest Marks Its Sixth Day

But analysts say investors err in worrying protests will spread across the Middle East

Concerns that unrest on Egypt posed a threat to the Middle East spooked the region’s stock markets on Sunday, sending shares lower, even as analysts discounted the likelihood on protests spreading.

While Egypt marked its sixth day of mass protests, forcing President Husni Mubarak to dismiss his cabinet, the Dubai Financial Market (DFM) General Index fell 4.3% to 1543.02 on Sunday, its biggest drop since August. The Abu Dhabi Securities Exchange retreated 3.7% to 2561, its lowest in fourth months. Egypt’s bourse was closed on Sunday after its main index fell 16% in the final two days of trading last week.

But Yazan Abdeen, a portfolio manager for ING Barings in Dubai, told The Media Line that investor concerns were unfounded and that there were already signs on Sunday that the initial panic had subsided.

The Saudi Tadawul All Share Index, which led the charge lower on Saturday when other markets are closed, with its key index dropping 6.4%, changed direction on Sunday, climbing 2.6%.Other Gulf indexes closed off their lows of the day Sunday.

“The underlying economic drivers vary greatly between countries. That’s why you started to see Saudi pushing back and reclaiming yesterday’s losses,” Abdeen said. “People who don’t know the region vey well worry there will be a contagion effect from Egypt to the Gulf Cooperation Council countries. But the ideology driving demonstrations in Egypt is related to poverty and unemployment. You can’t say that about the Gulf.”

Saudi Arabia, the biggest GCC country, enjoys a per capita gross domestic product of about $24,000, compared with $6,200 for Egypt, thanks to the world’s biggest reserves of oil. That underground asset became worth even more on Friday when the price of petroleum rose to nearly $100 a barrel, its highest in 28 months.

Even among the poorer countries the of Middle East, unrest has yet to materialize on the scale of Egypt or Tunisia, where protests forced President Zine El Abidine Ben Ali  into exile January 14. A demonstration in the Jordanian capital of Amman attracted just 3,000 people on Friday. There were no reports of unrest anywhere in the Gulf.

Nervousness over Egypt wasn’t confined to the Middle East. On Friday, stocks worldwide plunged the most since November, with the MSCI World Index, a barometer of global stock markets, declining 1.4%.

As crude oil posted its biggest jump since 2009, Canaccord Genuity said in an investor note that 1.8 million barrels of oil per day were transported through Egypt’s Suez Canal in 2009. If the canal were to be closed for an extended period, the Canadian brokerage house said, it would add 6,000 extra miles of travel costs to bring oil from the Gulf to Europe and the U.S., raising the cost of oil.

In Israel, which has very limited economic ties with Egypt despite 30 years of peace, the Tel Aviv Stock Exchange’s TA-25 index was down 3.6% in late trading. Amir Kahanovich, chief economist and market strategist at Clal Finance, was quoted in the Calcalist financial daily as saying unrest in Egypt could interrupt exports of natural gas to Israel.

Kahanovich also expressed concern that foreign investors would lump Israel with the rest of the region and pull out of Israeli stocks out of concern over regional political stability. But Philip Thorpe, chairman and chief executive of Qatar Financial Centre Regulatory Authority, said investors would learn to distinguish the real risks.

"Investors are sufficiently intelligent to understand the distinction between North Africa and the Gulf. It’s rather foolish to call the impact of the current events on the broader region," Thorpe told Reuters at the World Economic Forum conference in Davos.

Nevertheless, some Gulf companies have significant enough interests in Egypt that may be hurt by long-term instability or a change in the regime. For instance, Dubai’s Emaar Properties, saw its share price plummeting close to 8.3%, close to the maximum allowed by the market regulations. Air Arabia, the Middle East’s largest low-cost carrier with a hub in Egypt, saw its share price plunge by nearly 10%  in early trading before clawing back some of its drop to end down 6.1%. 

Dana Gas, an Emirati natural gas producer, plunged 9.9%, despite assurances that its Egyptian operations haven’t been stopped amid the protests.

But ING’s Abdeen said he was optimistic that even if Egypt undergoes regime change, the new government will be investor friendly and promarket. To meet the demands of demonstrators and end unrest, the new government will have to create jobs and provide subsidies for basic commodities, he said.

“The Egyptian government doesn’t have resources to provide subsidies without raising taxes,” Abdeen said. “But if they increase taxes there will be less spending and less job opportunities. That means they will have to attract foreign investment.”