Stock markets from Dubai to Riyadh tumbled on Sunday as investors braced for a renewed decline in oil prices after Opec ruled out cutting production.
Saudi Arabia's Tadawul headed for a bear market, while the Dubai Financial Market General Index dropped to its lowest level since October 16.
Opec on Thursday decided against cutting production to stabilise oil prices. Brent crude dropped 3.3 per cent on Friday to settle at US$70.15 a barrel.
“The fall of the markets was expected. The decision from Opec to maintain its output was expected. But for oil prices to touch $70, that was not expected,” said Sebastien Henin, head of asset management at The National Investor, an Abu Dhabi-based investment bank.
Data gathered from the options market on Friday showed that speculators were betting crude to touch US$65.
Brent crude has declined 37 per cent to $70 a barrel from US$112 a barrel in June.
“Most of the oil economies have been able to build a good buffer of liquidity over the past year, but now they are not any more in surplus and they will have to start digging in their reserves. That’s why we are seeing risk off the market. We can’t say any more that we are in the comfort zone,” Mr Henin said.
The Dubai Financial Market General Index dropped 4.7 per cent to close at 4,281.43 points. Of the shares that traded, 30 dropped, one rose and two were unchanged.
“Investor appetite toward the local market has been dented due to the significant drop in oil prices,” said Tariq Qaqish, the head of asset management at Al Mal Capital, a Dubai based investment bank. “The declines have been exaggerated further as a result of triggered margin calls.”
Emaar Properties, the developer behind the world's tallest skyscraper, declined 3.2 per cent to Dh10.60 a share. Arabtec Holding, the biggest contracting firm in the region, plummeted 7.3 per cent to Dh3.68.
“Clients are on the sideline as they know this is temporary but a little apprehensive,” said Nabil Farhat, partner at Al Fajer Securities.
The Abu Dhabi Securities Exchange General Index declined 2.6 per cent to close at 4,671.72 points. Dana Gas, the Sharjah-based explorer and producer, declined 3.2 per cent to 59 fils. Taqa, also known as Abu Dhabi National Energy Company, dropped 5.2 per cent to 90 fils.
Stocks listed on Saudi Arabia’s Tadawul, the biggest and most liquid bourse in the region, dropped 5 per cent to 8,624.89. Petrochemical companies led the declines.
“Saudi Arabia is highly correlated to the oil price,” Mr Henin said. “Firstly, because of government spending, second because its economy is not highly diversified as the UAE is. Lastly, the weight of petrochemicals on the index is high in the market and therefore the sector and the market as a whole is highly correlated to volatility in the oil price.”
Elsewhere in the region, Oman’s MSM 30 Index plummeted 6.2 per cent. Qatar’s QE Index dropped 4.2 per cent and Kuwait’s benchmark fell 3.3 per cent.
halsayegh@thenational.ae
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