Dubai's bourse made its largest one-day drop in 15 months on Monday and Abu Dhabi's measure also fell as investors took profits ahead of a decision by index compiler MSCI on whether to upgrade the UAE to emerging market status. Dubai's index lost 2.3 percent, its heaviest one-day loss since March 2012. Monday's decline trims its 2013 gains to 44.5 percent.
"We've see a spectacular rally and the drop has to be put in perspective - it's profit-taking," said Amer Khan, fund manager at Shuaa Asset Management. "To some extent, it's investors knowing full well that there is an event around the corner which will dictate market direction." MSCI will announce its decision on whether to upgrade the UAE and Qatar from frontier market status on June 12. Analysts say UAE bourses have fulfilled MSCI's requirements and investors are largely upbeat about the country's prospects of being reclassified as an emerging market.
"UAE has its best chance yet, but ultimately it will depend on whether the large emerging market funds want it to happen," Khan added. Abu Dhabi's benchmark fell 1 percent, down for a third session in four since June 3's 55-month peak. In Doha, the index gained 0.4 percent, extending gains to reach its highest close since September 2008. The market has rallied 12.1 percent year-to-date, in a move seen as more of a catch-up to neighbouring bourses.
MSCI is unlikely to upgrade Qatar, analysts say, with its low foreign ownership limits for listed firms the main hurdle. In Saudi Arabia, real estate stocks rallied as government spending on infrastructure lifted expectations of earnings growth. The kingdom set a record state budget for 2013 at 820 billion riyals ($219 billion), as high oil prices allow heavy spending on welfare and infrastructure projects.
The expansionary budget will boost economic growth, with a Reuters poll in April forecasting a median estimate of 4.1 percent for 2013. Makkah Construction and Development Co surged 9.8 percent, Taibah Holding rose 7.2 percent and Dar Al Arkan climbed 2 percent. The real estate sector index added 3.3 percent, extending year-to-date gains to 37.5 percent. It outperforms the wider market's 12.3 percent rise.
"There are a number of projects being given to construction firms; there is a catalyst in the form of corporate results," said Hesham Tuffaha, a Riyadh-based fund manager. Tuffaha expected the rally in real estate and construction stocks to continue, adding that 2013 estimates for revenue and profit growth are between 20 to 30 percent.
The main benchmark index slipped 0.08 percent as banks and petrochemical shares weighed. In Egypt, the main benchmark tumbled 2.9 percent to 4,776 points, its seventh consecutive loss and lowest close since July 2012. Political instability grows ahead of June 30, President Mohamed Mursi's one-year anniversary in office. The opposition has planned a mass demonstration on the date to highlight displeasure with the current government.
"The current support of 4,700 is very important," said Mohabeldeen Agena, head of technical analysis at Cairo's Beltone Financial. "If it's broken, the market will be red till the end of the month. The bears will attack more aggressively, which will lead the index to dive toward 4,200 again." The market's previous bottom was around the 4,000 levels - hit in June 2012 - the peak of social unrest before Egypt elected it's first leader following three decades of Hosni Mubarak's authoritarian rule.