Middle East North Africa stock exchanges suffer sentiment-led lows from upheaval (page 1 of 2)

It has been a sleepless couple of months for Sydney Fernandes, a manager for the Mena region at Kuwait-based logistics giant Agility. He has been on constant call as the company has grappled with violent unrest in Egypt, and now a bloody civil uprising in Libya, where Agility has 26 staff, and has halted all operations in and out of the country.

"Emails have mostly been down, and communication has been very sporadic - maybe three emails in the nine days since the conflict began, from the Tripoli office," says Fernandes. "Obviously we all fear for the safety of our staff. But if the UN, US and some of Libya's neighbours have been unable to [halt the violence], then what can one company do?

"We have been pursuing humanitarian channels and talking to nongovernmental organisations to see what we can do, but on our own all we can do is shutter the office and make sure our people stay at home," he adds.

Mena bourses slump 9%

This fear and frustration has been reflected in the company's stock price. Agility is down 37% year-to-date in the wake of the troubles which have so stymied its operations. But the logistics major is far from alone in that slump. Standard & Poor's pan-Arab composite of 15 Mena stock indexes - including those in Tunis, Cairo, Riyadh and Dubai - shows that bourses across the region were down more than nine percent year-to-date at the end of February.

"Egypt and Tunisia have been hardest hit on a year-to-date basis, but peripheral markets have also been hit, most notably Saudi Arabia, Dubai and Kuwait," says Ghassan Chehayeb, associate director of Research for the Mena region, at frontier market investment bank Exotix.

"Fundamentals win the day in the long-term, but people don't look too far ahead in this market, and at the moment investors are weighing the near-term as a more important driver for equity prices."

Chehayeb notes that regional markets are dominated by retail investors as opposed to institutional investors, or "smart money". Retail investors are typically more driven by sentiment than brass tacks, and this marks a key distinction between bourses in Saudi and Dubai, and more established and mature markets in the US and Europe.

"The base here is very retail-driven, up to 90% in Dubai and Saudi Arabia, and these investors trade basically on sentiment, as opposed to fundamentals," he says. "So negative news, such as what has happened recently, has a very big impact - investors get scared and don't pay attention to the fundamentals of the companies they're selling."

Saudi Tadawul down 16% despite strong fundamentals

The Saudi stock exchange, the Tadawul, is the biggest in the region and lost more than 16% of its value in the first two months of the year. What's more, according to Chehayeb, the bourse's troubles this year can be attributed solely to the political instability which has rocked the Middle East and North Africa since the turn of the year.

"Without what's been happening in the region I would have assumed that Saudi would have continued the up-trend it had last year," he says. "The fundamentals for the Saudi market are incredibly strong, everything economically is moving in the right direction, it has a huge commodity base, excellent demographics, large spending on infrastructure and healthcare.

"That's why the market appreciated last year, and that's why it should have continued to appreciate this year," he insists. "The entire drop is due to the revolts around the region."

Scotching rumours surrounding his health, 86-year-old King Abdullah in February returned to the kingdom and announced $36bn in benefits to lower and middle income Saudis.