Reuters/Dubai


Major Middle Eastern stock markets plunged in relentless selling yesterday because of sliding oil prices, a decision by Fitch Ratings to cut its outlook for Saudi Arabia’s debt, and Friday’s sharp losses on Wall Street.
Dubai suffered its biggest one-day fall since last December, with its main index tumbling 7.0% to 3,451 points, its lowest close since March 30. The index finished just off the intra-day low and close to major technical support on the March low of 3,233 points.
Saudi Arabia’s benchmark lost 6.9% to 7,463 points, nearing support on its December low of 7,226 points. That brought its losses so far this month to 18% - a drop which has erased some $75bn of market value.
“There was no discrimination in the selling - it was across markets, across sectors, across names,” said Sebastien Henin, portfolio manager at The National Investor in Abu Dhabi.
He noted that even stocks in traditional defensive industries such as telecommunications and food were hit hard in the Gulf. “That was a bit worrying.”
The major Gulf oil exporting states have huge fiscal reserves which will allow them to prevent cheap oil from damaging their economies for years. Nevertheless, the fact that a clear base for oil prices has still not emerged is spooking investors.
Their jitters were magnified by Fitch lowering its outlook for Saudi Arabia’s foreign and local currency issuer default ratings to “negative” from “stable”. Standard & Poor’s cut the kingdom’s outlook to negative in February; the third major rating agency, Moody’s, has not yet taken such action.
Most bankers and economists in the region think Riyadh is very unlikely to favour the risky step of breaking the riyal’s peg to the US dollar, and believe the scale of it foreign reserves mean it won’t be forced into such a measure for many years at least.
But one-year US dollar/Saudi riyal forwards have jumped to their highest levels since 2003 in the last few days as banks have hedged against the risk of the peg breaking - further alarming the equity market.
The UAE has a more diversified economy than Saudi Arabia and is fiscally stronger. But it, like other markets around the region, is vulnerable to a pull-out of Saudi money if Riyadh slumps.
Henin said it was difficult to identify support for the Gulf markets in their current mood and it might require a stabilisation of oil prices and big foreign equity markets, and therefore an easing of worries about China’s economy, for selling in the Gulf to dry up.
When that happens, there may be substantial buying back of stocks in markets such as the UAE, where valuations have reached attractive levels, he said. The UAE is trading near 11 times this year’s projected corporate earnings - reasonable in historical terms and compared to other emerging markets.
More than 10 Dubai stocks plunged by their daily 10% limits yesterday, including builder Arabtec. Top real estate developer Emaar Properties sank 8.3%.
In Saudi Arabia, petrochemical producer Saudi Basic Industries Corp lost 9.1%, miner Ma’aden was down 9.8% and Alinma Bank sinking 5.9%.
Abu Dhabi’s index fell 5.0% and Qatar stocks were down 5.3%.
Egypt’s stock index dropped 5.4%. Although Egypt’s economy should benefit from low oil prices, it receives aid and investment from the Gulf.
Elsewhere in the Gulf, Kuwait’s index fell 2.4% to 5,909 points; Oman’s measure dropped 2.9% to 5,911 points, while Bahrain’s benchmark fell 0.4% to 1,315 points.