Middle East stock markets plunged to new multi-year lows Sunday, with Saudi Arabia tumbling more than 5 percent, as a fresh slide of oil prices and declines in global equities triggered panic selling.
Many institutional investors were taken aback by the extent of Sunday’s losses in the Gulf, the almost indiscriminate tone of the selling, and the lack of buying support in the market even when valuations reached low levels.
Sentiment was hit hard by Brent oil’s 6 percent drop on Friday to settle below $29 a barrel, bringing its decline for the week to 13 percent. Saturday’s lifting of sanctions on Iran could in the short term push oil down further, as additional Iranian supply arrives in the global market.
Gulf Arab governments have been putting in place austerity policies to stabilise government finances in an era of cheap oil. But the latest drop of oil prices, if sustained, could force another, more severe round of austerity.
Saudi Arabia’s 2016 state budget, for example, was based on an average Brent oil price of about $40, analysts believe. If oil stays at current levels, additional spending cuts could slow economic growth further – conceivably threatening a recession.
“We will probably need a stabilisation of stock markets in China and the U.S., and of oil, before we see much buying in this region,” said Sebastien Henin, head of asset management at The National Investor in Abu Dhabi.
He said valuations of some stocks in the Gulf had become very attractive, and dividend yields were “amazing” at more than 5 percent across the region, but these factors were being ignored in the face of an uncertain global environment.
The Saudi stock index tumbled 5.4 percent, its largest drop since last August, to 5,520 points, its lowest close since March 2011. That brought its losses so far this year to 20 percent.
Only one stock rose – oil shipper Bahri, which swung wildly in its heaviest trade since December 2014 and closed 5.9 percent higher – while 165 stocks fell.
Second- or third-tier speculative stocks favoured by local retail investors were hardest hit because of margin calls. Petrochemical blue chip Saudi Basic Industries lost 3.0 percent.
Dubai’s economy stands to benefit from the lifting of sanctions against Iran because the emirate is a hub for Iranian business. But that prospect didn’t aid the market on Sunday, as the index slid 4.6 percent to 2,685 points, its lowest level since September 2013, bringing this year’s losses to 15 percent.
Blue chip Emaar Properties slipped 3.9 percent and construction firm Drake & Scull plunged its 10 percent daily limit to a record low of 0.32 dirham. Austerity policies in the region may add to pressure on construction firms, which have already been struggling with competition and high costs.
Air Arabia, which could enjoy more air traffic to Iran after the lifting of sanctions, dropped 3.1 percent while port operator DP World, which may handle more trade, slipped 3.9 percent.
Abu Dhabi’s index sank 4.2 percent, led by real estate firms and banks; blue chip Aldar Properties lost 7.0 percent.
Qatar’s index tumbled 7.2 percent as drilling rig provider Gulf International Services, the most heavily traded stock, plunged 8.6 percent.
In an austerity step, the Qatari government raised domestic gasoline prices by 30 percent at the end of last week, though they remain among the lowest in the world.
* The index tumbled 5.4 percent to 5,520 points.
The index sank 4.2 percent to 3,787 points.
* The index plunged 4.6 percent to 2,685 points.
* The index tumbled 7.2 percent to 8,528 points.
* The index dropped 3.2 percent to 4,948 points.
* The index lost 3.2 percent to 5,098 points.
* The index fell 0.4 percent to 1,196 points.