The worst day for Middle East stocks this year put investors across the rest of the world on stand-by for another day of selling in global markets.
Saudi Arabia’s Tadawul All Share Index fell into a bear market Sunday, and Dubai’s DFM General Index suffered its biggest loss of the year. Egypt’s EGX 30 Index slid the most in almost three years, making it the world’s second-worst performer in 2015. Israel’s TA-25 Index registered its largest retreat in almost four years.
More than $3.3 trillion has been erased from the value of global equities since China’s Aug. 11 decision to devalue its currency spurred a wave of selling across emerging markets already under pressure from falling commodity prices and expectations for U.S. interest-rate increases. The Dow Jones Industrial Average fell into a correction on Friday, fueling the biggest losses since 2011 for other gauges.
The Saudi bear market “is a big deal for any investor in the region,” said Rami Sidani, a Dubai-based money manager who oversees $1.7 billion as head of Frontier Markets Investments at Schroders Plc. “But this is a storm hitting all Gulf markets, starting with low oil prices to the extreme volatility hitting emerging markets. Our view is that until we see relative stabilization in oil markets, we will continue to see high volatility across the Gulf.”
The slide in Brent crude, the benchmark grade for more than half the world’s oil, to the lowest close since March 2009 is piling pressure on Gulf states that rely on exports of the commodity to underpin economic growth. The six-nation Gulf Cooperation Council is home to about 30 percent of the world’s proven oil reserves.
The MSCI Emerging Market Index closed at the lowest level in six years on Friday as Brent fell to $45.46 per barrel and West Texas Intermediate traded as low as $39.86 per barrel before closing at $40.45 on the New York Mercantile Exchange. WTI may decline to $32 should the global oil surplus persists, Citigroup Inc. said Wednesday.
Saudi Arabia’s Tadawul is now down 24 percent since hitting its 2015 peak in April, marking its second bear market in less than a year. Fitch Ratings on Saturday cut the outlook on the nation’s AA debt rating to negative from stable, indicating its next decision may be to lower its assessment.
Given Saudi Arabia’s stature as “a bellwether for the region, we’ll probably see more declines,” following Tadawul’s slump into a bear market, said Dubai-based Tariq Qaqish, who oversees $150 million as the head of asset management at Al Mal Capital PSC. “Saudi Arabia is going to have to cut its spending, especially if oil remains at these levels, and if it’s going to impact growth of the Middle East’s biggest economy.”
Dubai stocks sank 7 percent, bringing their loss since 2015’s peak to 18 percent. Israel’s TA-25 Index dropped 4.1 percent, and Egypt’s EGX 30 Index declined 5.4 percent.