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Abu Dhabi, UAEMonday 10 December 2018

Saudi stocks fall on FTSE non-inclusion fears

Dana Gas shares close down sharply

MSCI said in June it had added Saudi Arabia to its watchlist for possible addition to its emerging market measure of stocks. Saudi Arabia  Simon Dawson / Bloomberg
MSCI said in June it had added Saudi Arabia to its watchlist for possible addition to its emerging market measure of stocks. Saudi Arabia Simon Dawson / Bloomberg

Saudi Arabia's stock index fell yesterday on rumours that index compiler FTSE might not upgrade Riyadh to emerging-market status as quickly as hoped, while Qatar notched up its fifth straight session of gains.

At the end of the business day on Sept. 29, FTSE will announce its decision on whether to include Saudi Arabia in its secondary emerging market index.

For several weeks the market had been pricing in a strong chance of an upgrade. Analysts have predicted Saudi Arabia could see around US$3.2 billion to US$3.7bn of passive fund inflows as a result, although that would not occur until the decision actually took effect, probably in late 2018.

Two fund managers told Reuters that the Saudi stock index fell 1.4 per cent yesterday because investors were worried that FTSE might delay the upgrade on the grounds that foreign investors lacked enough access.

"These are rumours, which cannot be validated or verified until FTSE makes the announcement - nevertheless they were strong enough to create nervousness in the market today," said one fund manager, who declined to be named.

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Shares in major companies that would probably be included in FTSE's emerging market index were some of the worst performers yesterday. Samba Financial Group shed 2.9 per cent and dairy maker Almarai lost 3.0 per cent.

In Abu Dhabi, Dana Gas sank 4.1 per cent, taking its losses since Wednesday to a little more than 10 per cent, as investors awaited the outcome of a London High Court trial on the validity of its $700 million of outstanding Islamic bonds.

The trial focuses on Dana's June announcement that it would not redeem its sukuk on the grounds that changes in Islamic financial practice had made them unlawful in the United Arab Emirates. It is not clear when the London court will rule or whether a ruling will end the dispute, which is also being fought in a UAE court.

Most other Abu Dhabi shares were weak, dragging the index 0.7 per cent lower. In Dubai, the index fell 0.9 per cent as 20 shares declined and only nine rose.

Qatar's index rose 0.6 per cent, however, as regional investors stepped up their purchases of Qatari shares. They accounted for roughly 10 per cent of total market turnover, bourse data showed.

Fund managers from the six-nation Gulf Cooperation Council, excluding Qatar, dumped Qatari equities after four Arab states cut ties with Doha in June. It was not clear whether some GCC investors were now buying because they hoped for a resolution of the dispute.

A little under two-thirds of the 20 most valuable Qatari companies rose yesterday, including Qatar Islamic Bank , which added 2.6 per cent.

In Egypt, the index rose 0.5 per cent with tourism-related companies some of the top gainers. They included Egypt Resorts, which surged 9.8 per cent in unusually heavy trade.