Oil falls to fresh 11-year low as Dubai, Asian stocks plunge

Circuit breakers, activated for the second time in a week, could not stop sliding stocks from hitting world trade while oil fell to fresh 11-year lows below $33.

Traders at work as South Korea’s won ends at 1,200.60 per US dollar on 07 January 2016. Asian stocks plunged once again on Thursday morning, following the second automatic suspension of Chinese stock trading in four days. Yonhap / EPA
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Global markets were shaken on Thursday by the rout in China as oil dropped below US$33.

Circuit breakers installed by Chinese authorities last month on the country’s stock markets were triggered for the second day in a week, automatically halting trading after the Shanghai Composite plunged 7 per cent in its first half hour of trading.

Later on, China’s stock regulator decided to suspend use of the circruit breakers from Friday.

The Shanghai Composite has fallen 11.7 per cent since the start of the year on poor manufacturing data, with government intervention to stabilise the market having little effect.

“China’s economy is going through a transition that is impacting all asset classes worldwide,” said Hussein Al Sayed, the chief market strategist in the Middle East for IG. “There’s likely to be a heavy impact here in the region in terms of economic outlook and financial markets, especially in Saudi Arabia and the UAE given their trading links with China.”

Investors will line up to sell stock when China’s market reopens today, said Ralph Schlosstein, the chief executive of Evercore Partners.

Saudi Arabia’s Tadawul All Share Index fell 4.49 per cent to 6,225.22, a four-year low. Dubai’s headline index finished 3.4 per cent lower while Abu Dhabi fell 3.1 per cent. The Qatar Exchange ended down 3 per cent.

More than 38.5 billion Saudi riyals has been wiped off the value of Saudi shares in the first week of the year, with Dh2.9bn coming off Dubai shares.

China’s woes have wiped about $2.5 trillion off the value of global equites since the start of the year, with investors unsettled most recently by the government’s weakening of the yuan on Wednesday.

Concerns about China’s manufacturing sector once again took their toll on crude oil prices, which touched yet another 11-year low.

Brent crude futures dipped below $33 a barrel for the first time since early 2004, before paring losses yesterday evening.

“Geopolitical risk [to oil] has been dominated by weak manufacturing data by China and sharp declines in Asian stock markets,” said Alp Eke, the chief economist at the National Bank of Abu Dhabi.

The fresh fall in oil prices came despite a report by the US Department of Energy, issued late on Wednesday, that noted a 5.1 million barrel decline in US crude oil inventories.

Yesterday’s fall in oil prices coincided with declining purchasing manager index data for Saudi Arabia and the UAE’s non-oil economies, even as overall sentiment remains positive.

The effect of China’s woes on the UAE will extend beyond the impact on oil prices as other key sectors such as trade and real estate would be affected by that, said Mr Al Sayed.

“We’ve seen a lot of Chinese investors investing in real estate in the UAE, but since the yuan’s devaluation I can’t see this continuing,” he said.

“The dirham is becoming very expensive for investors across emerging markets and also Western Europe, so local real estate prices will be impacted.”

jeverington@thenational.ae