Dubai’s stocks sank to the lowest level in more than two months, leading most Middle Eastern markets lower, on concern that Saudi Arabia’s debt downgrade will drive up borrowing costs across the region.
The DFM General Index dropped 2.1 percent to close at 3,430.93, the lowest level since Aug. 24. Saudi Arabia’s Tadawul All Share Index lost 1.1 percent after Standard & Poor’s cut the country’s credit rating, citing an increase in the kingdom’s budget deficit after the slump in oil prices.
“The downgrade will have implications for banks and financial services sector across the region,” said Muhammad Shabbir, the head of regional equities at Rasmala Investment Bank Ltd. in Dubai. “Banks’ credit ratings could come under pressure, not just for Dubai but for all across the Gulf Cooperation Council. This has implications for the costs of borrowing.”
S&P lowered Saudi Arabia’s rating on Friday to A+, five steps below the top grade, with a negative outlook. Saudi Arabia, OPEC’s biggest producer, has suffered as crude’s 40 percent slide in the past 12 months strains government spending in a country that gets at least 80 percent of its revenue from energy. Dubai is one of the seven members of the United Arab Emirates, whose oil reserves are the eighth-largest in the world.
‘More Bad News’
Brent crude gained 1.6 percent on Friday to $49.56 a barrel, paring its decline in the past 12 months to 42 percent.
Dubai’s Emaar Properties PJSC, the company with the largest weighting on the gauge, led the retreat with a 3.9 percent drop. Dubai Islamic Bank, the U.A.E.’s biggest Shariah-compliant lender, slipped 2.2 percent. Trading volumes in the emirate remain depressed. About 183 million shares changed hands on Sunday, compared with a one-year daily average of more than 422 million.
Sunday was the first time that a rights issue has traded on Dubai’s exchange. Takaful Emarat Insurance PSC plans to raise 50 million dirhams ($13.6 million) initially from the sale of new shares. Existing shareholders of the company who don’t plan on participating in the offering can sell all of their rights until Nov. 15. Takaful Emarat stock closed 3 percent lower at 1.6 dirhams.
Abu Dhabi’s ADX General Index fell 0.5 percent and Qatar’s gauge slipped 0.2 percent. Bahrain’s All Share Index and Kuwait’s measure both rose 0.1 percent. Oman’s MSM 30 Index climbed 0.3 percent led by National Bank of Oman SAOG’s 7.3 percent increase.
“We see more bad news coming with the recent downgrade of Saudi Arabia,” said Tariq Qaqish, the head of asset management at Dubai-based Al Mal Capital PSC. “Oil is not breaking the $50 level and, most importantly, liquidity is drying up.”
Gulf banks are seeing surplus cash decline because of the slump in crude. The three-month Saudi Interbank Offered Rate, a benchmark used to price some loans, climbed to the highest since February 2013 on Sunday. The Emirates Interbank Offered Rate in the U.A.E. is trading near the highest in two years.
Saudi Arabian billionaire Prince Alwaleed Bin Talal’s Kingdom Holding Co. agreed to sell its entire stake in Saudi Research & Marketing Group at 35 riyals per share, or almost double the current price, it said today. Saudi Research was unchanged, while Kingdom rose as much as 7.4 percent before trading 1.9 percent higher.
Egyptian stocks retreated 1.3 percent. Authorities began investigating the crash of a Russian airplane in the Sinai Peninsula that took the lives of all 224 passengers and crew members on board. Officials from Egypt and Russia have doubted the Islamic State’s claim that it shot the plane down.
“Tourism numbers are already down significantly,” said Mohamed Ebeid, the head of brokerage at EFG-Hermes Holding Co. “I think everyone is waiting to see the real cause of the accident before judging the outcome.”
Minister to Resign
Israeli stocks rose 0.1 percent led by Bezeq Israeli Telecommunication Corp.’s 2.2 percent advance.
Tel Aviv’s oil and gas index climbed the most in almost two months after Aryeh Deri agreed to resign as economy minister, removing a hurdle preventing approval of the nation’s natural gas policy framework. Prime Minister Benjamin Netanyahu said he will approve the outline plan, allowing the companies to begin development of Israel’s largest offshore gas field.
“We see an upside for gas stocks as the resignation of Deri promotes a scenario in which the gas framework will be passed and the industry developed,” said Sagie Poznerson, the head of trading at Leader & Co. Investment House in Tel Aviv.
Delek Drilling led the gains on the index, with a 6.8 percent increase, the most since March 18.
Turkish citizens went back to the polls for the second parliamentary elections in less than six months. The inconclusive vote in June spurred a selloff in Turkish assets as political parties failed to establish a coalition government, raising questions over who will run the nation’s $800 billion economy. The slump ended last month amid signs that some parties are willing to create alliances should Sunday’s vote result in another hung parliament.
October was the lira’s best month in almost four years as it rose 3.8 percent to 2.9150 against the dollar. The Borsa Istanbul 100 Index and the government’s 10-year bonds both rallied the most in a year.