x Abu Dhabi, UAEThursday 27 July 2017

Euro's woes cast long shadow

Continued slide in oil price could spook markets in GCC

DUBAI // With first-quarter earnings almost out of the way, regional equity markets need local focus to divert attention from the sovereign debt rout in the euro zone, which has battered oil prices in the past two weeks and hamstrung global equity and currency markets. Although reaction to the euro zone debt troubles was less apparent in regional markets last week, analysts say that if oil prices continue to decline and the Greek crisis worsens, GCC markets will react more strongly.

"You can already see that happening in the Saudi Market today (Saturday). The petrochemical stocks have declined sharply due to the overnight weak close of oil," said Hassan Awan, an associate at the asset management division of The National Investor in Abu Dhabi. Saudi Basic Industries Corporation and Sahara Petrochemical both dropped more than 5 per cent after crude oil slid to a three-month low near US$71 a barrel on Friday. The market is now poised for a test of the $70-a-barrel level. The last time benchmark crude oil futures on the New York Mercantile Exchange (NYMEX) ended below that level was in December. Light sweet crude oil for June delivery settled at $71.61 a barrel on the NYMEX.

Shuaa Capital, the largest investment bank in the country, is advising caution on investments in the Saudi market. In a note to investors, Adel Merheb, an analyst at Shuaa Capital in Dubai, highlighted further selling pressure in the Saudi market and recommended that investors "stay out of the market". But UAE investors will be focused on debt restructuring at Dubai Holding, which reportedly has hired consultants to look into two of its entities for a possible debt restructuring.

Cautious investors can, however, take hope in Nakheel's recent payment of an $890 million sukuk. The company, which is the property unit of Dubai world, is restructuring $14.2 billion of debt. It said on Tuesday that the Dubai Financial Support Fund had given it enough money to repay its Islamic bond. It said on Thursday that it had settled more than half of the claims from its trade creditors. "Restructuring is the most important factor for the UAE markets. If the Dubai World deal is done, it will remove a very significant overhang from the market, but if Dubai Inc, such as Dubai Holding, goes into restructuring, it will cast a negative shadow on the market," Mr Awan said.

Until the market finds local catalysts to determine the direction of trading, however, macroeconomic influences from international markets will continue to affect regional bourses. The regional markets were a mixed bag last week: the Abu Dhabi Securities Exchange General Index added 0.4 per cent for the week ending on Thursday, and the Dubai Financial Market General Index declined 0.9 per cent for the week. The Saudi Tadawul All Share Index, which trades from Saturday to Wednesday, was the biggest loser last week, dropping 1.9 per cent, followed by the Muscat index, which was down 1.4 per cent. Bahrain and Qatar retreated 0.6 and 0.4 per cent, respectively, while Kuwait advanced 0.6 per cent.

The NASDAQ Dubai closed the week with a slight gain. The index gained 0.13 per cent, while the Abu Dhabi Islamic Bank Islamic Index on the MSCI UAE ended the week up by 0.03 per cent. European shares ended a tumultuous week sharply lower on Friday. The Stoxx Europe 600 Index dropped 3.5 per cent, sharply cutting into gains earlier in the week after the announcement of a ?750bn EU-IMF aid package for vulnerable members of the euro zone. Shares ended on a weak note in Asia, while US stocks also fell.

The euro has lost ground against the dollar since Greece shocked markets last year by revising its budget deficit upward, and the euro dropped another 1.2 per cent to 1.2384 against the dollar on Friday, a 17-month low. skhan@thenational.ae