Bolstered dollar and rising oil price expected to drive stocks and strengthen economy in Gulf.
Lively week ahead as Fed lights touch paper
Soaring commodity prices should drive stock price movement this week as the full effects of the US Federal Reserve's stimulus measures filter through to world markets, traders and analysts say.
Quantitative easing measures, which have had a corrosive effect on the strength of the US dollar since they were announced in September, are expected to buoy foreign demand for oil in the coming months.
That should lead to increased investor interest in oil-rich Gulf states, said Giyas Gokkent, the chief economist at National Bank of Abu Dhabi.
"When you look at what's happening with quantitative easing, dollar weakness and commodity price rises, that should also mean not only rises in commodity prices but also asset prices," Mr Gokkent said.
Last week, analysts at JPMorgan Cazenove said oil prices could reach US$100 a barrel before the end of next year, driven by dollar weakness, emerging market demand and the rebuilding of French strategic stocks after the end of a series of strikes.
That outlook was echoed by Bank of America Merrill Lynch on Thursday.
Oil hit a two-year high on Friday, with Brent Crude trading at $88.14 a barrel, having risen by 70 cents in the course of the day. US monthly payroll figures rose to 151,000, adding further optimism that energy demand in the world's largest economy is starting to return.
The Saudi Tadawul All-Shares Index closed up 1.8 per cent at 6,461.74 yesterday. Other Gulf economies could soon follow, with oil predicted to rise even further.
One trader at a major investment bank, who asked not to be identified, said Gulf stocks and certain sectors linked to oil, notably petrochemicals, would have a great deal of activity in the coming week.
"There's no reason to suggest highly improved investor sentiment from international markets is about to dissipate," the trader said.
"The SABICs [Saudi Basic Industries Corporation] of the world, Saudi Chemical and all the rest of them, clearly react to what's happening in oil. In Qatar, the likes of Industries Qatar closed up 2.9 per cent on Thursday and you could well see a repeat."
With oil having held on to its gains at the weekend, the trader expressed optimism that these stocks will see further gains, although he added that UAE stocks should encounter less movement from changes in the price of oil.
But he warned that losers from gains in oil could include airline stocks such as Air Arabia, which could slump as higher oil prices create tighter margins across the industry.
Mr Gokkent added a higher oil price would mean budget and trade surpluses for the UAE, which could lead to stronger growth for the wider economy.
"The financial sector should benefit to some degree in an indirect way," he said. "I think one of the ways that you can see this is through the banks, using them as a proxy to the broader economy."