-Stock markets in the petrodollar-dependent Persian Gulf tumbled Sunday to multimonth lows, spooked by sharply lower oil prices and a global equities selloff on growing concerns about China’s economy.
Saudi Arabia, the Middle East’s biggest market, led the regionwide decline to finish the day nearly 7% lower. Dubai stocks dropped by a similar percentage, while regional peers Abu Dhabi and Doha’s markets both fell 5% each to extend recent losses.
The Gulf meltdown followed a U.S. equity selloff Friday, the worst in four years, after new Chinese data raised more questions about the health of the world’s second-biggest economy, and whether this would impact global growth. And a potential slowdown in Chinese demand for commodities dragged oil prices lower amid increasing consensus that cheap crude is here to stay.
For the Gulf nations, which largely depend on energy exports to finance their expansionary spending plans at home, the weak outlook for oil further aggravated a recent sell-down of risk in the region.
“The double-dip in oil prices [after last year’s fall] has made investors worried about the growth prospects for the Gulf Cooperation Council [states], particularly since oil prices are once again below the budget break-even for many countries,” said Simon Kitchen, the head of MENA strategies at investment bank EFG Hermès.
Dubai stocks lost 7% to end at 3451.48, while its neighbor in the United Arab Emirates, Abu Dhabi’s market, dropped 5% to 4286.49. Qatar’s main stocks benchmark finished down 5.3% at 10,750. The Gulf stock markets are open for trading Sunday through Thursday.
Investors took a lead from Saudi Arabia, the region’s biggest economy. Its stocks closed 6.9% lower at 7463.32 after Fitch Ratings on Friday downgraded its outlook for the kingdom to negative from stable because of weaker oil prices.
The Saudi economy is heavily dependent on oil, which accounts for 90% of fiscal revenues, 80% of current account revenues and 40% of the gross domestic product, analysts at Fitch noted.
The Saudi market was the region’s top performer this year ahead of its opening to foreign investors in June, but it is now down more than 10% in 2015 so far.
Not surprisingly, retail investors that still dominate most regional markets further cut their equity exposure, also in part because of margin calls as benchmarks fell below key support levels. Margin financing, or money borrowed for stock purchases, is often used by small investors in the region because of the relatively easy access to credit here.
“The multiple fears of China slowing down, a currency war, reduced oil-related income for regional governments to spend and a growing U.S. economy not being strong enough to withstand these new threats does not make for a pretty picture,” Al Masah Capital said.
“Regional buyers need a lot of conviction to step in front of this speeding train; however, valuations are becoming attractive, especially in Saudi and U.A.E., but these now need to be taken in context of a rapidly changing economic environment,” Al Masah added.
Several analysts agreed that the selling might be overdone, especially in some Gulf markets, but largely remain cautious.
“Investors are being indiscriminate: The U.A.E. is better placed for the fall in oil prices, since it has made reforms [cutting energy subsidies] and has a relatively well-diversified economy,” EFG’s Mr. Kitchen said. “[Regional] governments need to make serious reforms, particularly to taxation and subsidies, to put growth on a surer footing–progress on this would help markets,” he added.
Source: MarketWatch
