Gulf Arab markets fall on US rating cut, Saudi recovers

DUBAI: Gulf markets tumbled on Sunday, with major bourses in Dubai and Qatar slumping more than 5 percent, on worries a US ratings downgrade and European debt woes may trigger another global downturn.

S&P cut the US long-term credit rating by a notch to AA-plus in an unprecedented blow to the world's largest economy. It called the outlook "negative," signalling another downgrade is possible in the next 12 to 18 months.

Rattled investors in the world's largest oil exporting region sent markets to multi-month lows, a day after Saudi Arabia, the Arab world's largest bourse, hit a five month low. "That (Saudi drop) is what really spooked the market, seeing the strength by which it went down in a short amount of time," said Mohammed Yasin, chief investment officer at CAPM Investments in Abu Dhabi.

A steady open in Saudi Arabia, which starts two hours after the first Gulf markets begin trading, helped staunch the decline elsewhere in the Gulf.

But early damage was done with Dubai's benchmark enduring its biggest drop since Jan. 30. Bellwether stocks such as Emaar Properties dropped 5.92 percent.

In Oman, the index hit a two-year low and Qatar's benchmark fell to its lowest since March 17, when regional political unrest swept Arab markets lower.

Saudi Arabia's index opened 0.2 percent higher.

"Today is a stemming of the bleeding, but things are still unknown. There are a lot of questions, on how the downgrade could affect the Saudi development plan," said a Riyadh-based fund manager who asked not to be identified.

"Saudi foreign asset levels are at record highs, most in US treasury bills. The US downgrade affects us the most in the region, we don't know how the yields are going to play out."

The US dollar is expected to weaken and Treasury yields rise when Asian markets reopen on Monday, though any selling in response to ratings agency S&P's downgrade of the United States is likely to be tempered by the escalating crisis in the euro zone.

"The downgrade is bad news and will depress people and create anxiety in the market," said Jarmo Kotilaine, chief economist at National Commercial Bank in Riyadh.

"People will likely be reluctant to invest. With the US and Europe, the whole house of cards built during the era of cheap credit is shaking. That is making people nervous."

Dubai's index was 3.7 percent lower at 1,484 points at 1102 GMT. In neighbouring Abu Dhabi, the index fell to a six-month low before recovering some losses. It was down 2.53 percent at 2,603 points.

Developer Aldar Properties fell 5.5 percent and First Gulf Bank dropped 5.9 percent.

Qatar's benchmark opened 5.2 percent lower at its lowest intra-day level since mid-March. It recovered ground to trade 2.54 percent lower at 8,275 points at 1104 GMT.

Industries Qatar fell 4.1 percent, Qatar Islamic Bank slumped 9.7 percent and Barwa Real Estate sagged 5.1 percent.

Kuwait -- which is the only Gulf Arab state that des not peg its currency to the US dollar but to a basket of currencies instead -- fell 2.3 percent.

"The US market will continue to attract liquidity. It is more sophisticated and more technology driven and it will always be attractive," said CAPM's Yasin. "We don't have that in our markets and it's going to be tough ride going forward."

Copyright Reuters, 2011