Investors sold Saudi Arabian stocks after an International Monetary Fund warning of slowing growth in the Middle East’s biggest economy tipped the equity index into a so-called death cross. Dubai’s shares also slumped.
The Tadawul All Share Index slid for a sixth day, closing 2.9 percent lower at 8,197.02, the weakest level in more than seven months. That dragged its 50-day moving average below the 200-day moving average, a signal to some investors that further declines are in store. Al Rajhi Bank’s 2.9 percent decrease was the biggest contributer to the loss. Dubai’s DFM General Index slipped 2.5 percent to the lowest close since April 13.
The Tadawul’s drop comes two months after Saudi Arabia opened its stock market to direct foreign investment for the first time to help diversify its economy away from oil. It puts into focus the deepening concern that King Salman is pushing ahead with a multi-billion dollar spending program at a time when crude, which accounts for 90 percent of government revenue, is trading near the lowest in six years.
“The push was the IMF, but what dragged it down further was fear that if the market closes below the 8,000 level, no one knows when it’ll bottom out,” Muhammad Shabbir, the Dubai-based head of equities at Rasmala Investment Bank Ltd., who oversees more than $500 million in assets, said from Dubai. The measure’s death cross triggered “panic and margin calls across the board,” he said.
A margin call is a broker’s demand that a customer provide additional cash or securities to satisfy requirements for the purchase or short sale of assets, or to cover an adverse price movement.
While Rasmala’s exposure to Saudi stocks remains significant, the company is becoming selective about the stocks it chooses to buy, Shabbir said.
Growth in OPEC’s biggest exporter will slow to 2.8 percent this year and 2.4 percent in 2016 after oil prices slumped, the Washington-based IMF said in a statement on Monday. If spending isn’t curbed, its fiscal deficit would be “very large” this year and over the medium term, it added.
Brent crude, the benchmark grade against which Saudi exports are priced, retreated more than 50 percent in the past 12 months to $48.47 per barrel on at 1:36 p.m. in London. The Tadawul fell 23 percent during that period.
Equity indexes in the six-nation Gulf Cooperation Council, where most governments rely on oil revenue to fund their spending, also declined. Abu Dhabi’s ADX General Index fell 2 percent, Qatar’s QE Index lost 0.6 percent and the Bloomberg GCC 200 Index, which tracks 200 equities across the region, slipped 1.9 percent.
“Weaker oil for the region potentially impacts government spend” including deposit growth with the banks, Ali Khan, the chief executive officer of London-based BGR Asset Management LLP, said by e-mail. He’s no longer exposed to Saudi Arabian stocks and is cautious about investing in U.A.E. markets.
In Egypt, where the government has relied on financial aid from the Gulf since the 2011 Arab Spring, the EGX 30 Index fell 2.6 percent to the lowest in more than six months.