18/11/2014 05:32 AST
Saudi Arabia’s stock market fell sharply yesterday as oil prices extended their decline on news that Japan, one of the world’s largest crude importers, had slipped into recession.
The main Saudi index dropped 2.8% to 9,290 points, its lowest level since March 6, in a broad sell-off. It slid below technical support on the October low of 9,303 points, leaving no further support in the vicinity.
“There is one main concern which is the ongoing decrease in the oil price, which clearly is causing some market jitters,” said Julian Bruce, director of Western institutional equity sales at EFG Hermes in Dubai.
Brent crude fell more than $1 towards $78 a barrel yesterday after Japan, the world’s fourth-biggest crude importer, slipped into recession and Saudi Arabia reiterated that oil prices should be left to supply and demand.
Although historically there has been no strong correlation between oil prices and the performance of Saudi Arabia’s overall stock market, in the short term their decline is likely to hurt petrochemical companies by devaluing their inventories; there were already signs of this happening in the third quarter.
In the longer run, some analysts said there could be concern about state spending, which is one of the main factors underpinning corporate earnings in the Gulf.
Saudi Arabia’s Finance Minister Ibrahim Alassaf was quoted as saying yesterday that the plunge in oil prices would not have a direct impact on Saudi Arabia’s budget, and economists believe its huge reserves mean it will be able to sustain spending next year if it decides that is necessary.
One item of spending that could be cut, some market players say, is financial aid to Egypt, which might be bad news for the Cairo government as it tries to rebuild the economy while managing growing state debt. However, lower oil prices will also provide a big boost to Egypt’s external position and reduce the pressure on state finances from energy subsidies.
Egypt’s main stock index fell 1.2% yesterday as all but a handful of stocks declined.
Markets in the UAE also fell. Dubai’s bourse lost 1.6% as contractor Arabtec, which dominated trading volume, fell a further 2.7%. The stock tumbled 5.9% on Sunday after Arabtec’s third-quarter profit missed analysts’ estimates.
The $689mn initial public offer of shares in Dubai Parks and Resorts began on Monday, and some stock investors are likely to divert funds to the IPO.
Abu Dhabi’s index fell 1.1% with most blue chips in the red. National Bank of Abu Dhabi slid 2.1% and Abu Dhabi Commercial Bank was down 2.0%.
Qatar was the only major market in the region that rose yesterday, after Saudi Arabia, the UAE and Bahrain agreed on Sunday night to return their ambassadors to Doha.
Elsewhere in the Gulf, Kuwait’s index declined 0.8% to 7,054 points; Oman’s index edged down 0.2% to 7,030 points, while Bahrain’s index rose 0.2% to 1,451 points.
Reuters
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