Dubai Diverges From Saudi Arabia in World of Stocks on Oil Slump

(Bloomberg) -- Dubai equities are tracking moves in Saudi Arabian shares the least closely in more than three years as the drop in oil prices prompts investors to pay more attention to local factors driving the two markets.

The correlation between the benchmark indexes in Dubai and Saudi Arabia was at the lowest level since May 2014 earlier this week, signaling that diverging factors are on the minds of traders in Riyadh and the United Arab Emirates.

The markets tend to be more in lockstep when oil prices are either high or at multi year lows, times when the value of a barrel of crude dominates investors' decision-making, said Joice Mathew, the head of equity research at United Securities in Muscat. Right now, investors are weighing the relative strengths -- and weaknesses -- of each economy, he said.

There is a mix of reasons for the current picture, “ranging from the relative oil dependence of the respective economies, the perceived risk in the market from an oil-price crash and the nature of investors present in the market during the bearish period” of even cheaper crude, Mathew said.

The stock benchmarks in Dubai and Riyadh are lagging developing countries this year. The DFM General Index has dropped almost 5.5 percent, after a 12 percent advance in 2016, while the Tadawul All Share Index is down 4.5 percent, erasing last year's gains of 4.3 percent. The MSCI Emerging Markets Index has climbed 17 percent.

Dubai stock investors are likely to focus on signs of any pick up in the local economy, particularly in real estate, while a potential upgrade to emerging-market status looms large for its neighbor, said Ali Adou, a money manager at The National Investor in Abu Dhabi. “In the U.A.E., there is a lack of catalysts at the moment, while in Saudi Arabia the index inclusion should be watched closely,” he said.

--With assistance from Dana El Baltaji

To contact the reporter on this story: Filipe Pacheco in Dubai at fpacheco4@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, John Viljoen