GCC stock markets fall on new oil lows

20 August 2015

Tadawul and DFM hardest hit

  • GCC stock markets fall significantly on lower oil prices, negative global sentiment
  • Saudi Arabia’s Tadawul all shares index has dropped 12.2 per cent since 30 July
  • Dubai Financial Market index has fallen 7.5 per cent over the same period

Stock market indices across the GCC have recorded dramatic falls over in August as oil prices have dropped again.

On Saudi Arabia’s stock exchange, the Tadawul all shares index (Tasi), fell 12.2 per cent between July 30 and 19 August. It reached 7991.3, its lowest level since December 2014.

The Opec basket price dropped below the $50 mark on 3 August for the first time since 2009, to reach $48.40.

The most dramatic fall was between 10 and 19 August, where the Tasi fell 9.5 per cent as the Opec basket oil price slipped from $47.32 a barrel to $45.39.

“What’s driving the market is the lower oil price,” says a Dubai-based financial analyst. “There is a weaker risk appetite on the Tadawul. Investors are not rushing in and we are seeing a lower level, some sell-offs. There will be good investment opportunities soon on the back of this weak sentiment.”

Other GCC stock markets have followed a similar profile, with the Dubai Financial Market (DFM) the second most affected. Its main index fell 7.5 per cent between 30 July and 19 August, breaking the psychologically significant 4000 barrier to end at 3,833.3.

The Abu Dhabi Securities Exchange (ADX) index fell 5.4 per cent over the same period to 4575. Its worst day was 18 August, when it fell 91.5 points, or 2 per cent to 4539.9.

Other factors than oil price may also be impacting market performance, such as international negative investor sentiment. Global volatility is driven by the Greek debt crisis, signs of a slowing economy in China and the possibility of rising US federal interest rate is September.

“Some markets are more affected than others, especially the larger markets in Saudi Arabia and the UAE which are more exposed to international factors and investors,” says an analyst at the National Bank of Kuwait (NBK).

Internal macroeconomic factors, such as growing public deficits and softening real estate markets are also feeding into the volatility.

Oman’s Muscat Securities Market saw falls of 6.1 per cent between 30 July and 19 August.

Oman is more vulnerable to oil shocks than other GCC countries due to its smaller hydrocarbon reserves and larger, less wealthy population. Concerns over public deficits and continued state spending there have been growing.

Analysts are relatively optimistic over long-term equity market performance.

“The corrections should be limited as the underlying fundamentals of the market haven’t changed, so long as the oil price remains around $50 a barrel,” says the NBK analyst. “Kuwait and Qatar hadn’t rallied much this year, so there was less of a correction.”

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