Saudi Arabia's stock market plunged 5.9 percent on Monday, leading another day of losses across the Middle East as the region reacted to sliding oil prices and a deteriorating global environment. "Markets in the Gulf are changing their expectations and looking at the possibility of different conditions in future: lower oil prices, perhaps lower government spending," said Adel Merheb, director of equity capital markets at Dubai's Shuaa Capital.
For that reason, the sell-off in the Gulf may have further to run, despite valuations that have become considerably cheaper in the last few days, he added. The Saudi index's drop brought it to a 29-month low of 7,025 points, breaking major technical support on its December low of 7,226 points. The index, which had plunged 6.9 percent on Sunday, has now lost 23 percent in August, erasing more than $100 billion of market value. US dollar/Saudi riyal forwards edged up to fresh 12-year highs on Monday as banks hedged against the risk of riyal depreciation. Saudi credit default swaps, used to insure against a sovereign default, also rose. The kingdom has over $600 billion of net foreign assets, so bankers and economists think it is in no danger for the foreseeable future of breaking its currency peg or defaulting on its debt, which is currently miniscule.
But the market movements show how oil's relentless slide is eroding confidence in the Saudi economic model. The government has still not publicly released a detailed plan to cope with an era of cheap oil. Saudi Basic Industries Corp, the kingdom's biggest petrochemical producer, lost 7.0 percent on Monday while the petrochemical sector index plunged 7.3 percent. The sector's earnings are directly linked to falling global oil prices.
Miner Ma'aden, which had risen in early trade, closed down 9.6 percent. Other Gulf markets also fell but less steeply as bargain-hunters, who had deserted the markets on Sunday, returned. The Dubai index came well off its early lows and ended down 1.4 percent at 3,402 points, after plunging 7.0 percent on Sunday. Some beaten-down second-tier stocks rebounded, such as bourse operator Dubai Financial Market, up 4.0 percent.
Merheb said, however, that it was by no means clear where Dubai's market would bottom. He noted that the index was still about 5 percent above its low in December, when Brent crude oil hit a low of $45 a barrel; oil is now at $43 and falling. Abu Dhabi's stock index lost only 0.5 percent as a few bluechips rose; Aldar Properties gained 3.4 percent and First Gulf Bank rose 0.7 percent. Qatar's market slid 1.7 percent but Islamic bank Masraf Al Rayan edged up 0.4 percent.
Egypt's stock index, which had tumbled 5.4 percent on Sunday, lost a further 1.9 percent, caught up in the global emerging markets rout. All of the 10 most heavily traded Egyptian stocks dropped but some second-tier stocks bounced back, with Credit Agricole Egypt surging 5.5 percent.
Comments
Comments are closed.