Middle Eastern Stocks Slump as Investors Weigh Brexit Fallout

  • Bloomberg’s GCC 200 Index retreats the most in a month
  • Egypt stocks sink most since January, leading Mideast drop

Middle Eastern Stocks Slump After Brexit Shock

Middle Eastern stocks followed declines across global markets as investors sought answers to how Britain’s decision to leave the European Union will affect economies in the region.

Dubai’s DFM General Index lost 3.3 percent, the most since January, as Emaar Properties PJSC tumbled 4.7 percent. Saudi Arabia’s Tadawul All Share Index fell 1.1 percent as more than 85 percent of its members retreated. The Bloomberg GCC 200 Index, a gauge of the biggest and most liquid stocks in the region, dropped 1.3 percent, the most in a month.

Global markets buckled and about $3 trillion was erased from equity values on Friday following the U.K.’s referendum on EU membership, which ended with a majority backing the “Leave” campaign and Prime Minister David Cameron’s resignation. Amid the volatility, oil, the biggest source of income for governments in the six-nation Gulf Cooperation Council, fell the most in four months.

“There’s a lot of uncertainty over Brexit, and traders hate that,” said Hatim El Atabani, the Abu Dhabi-based head of prime equity brokerage at Al Ramz Capital LLC. “I want to know who the sellers are. If it’s foreigners, then this selling pressure could last a few days, because it’ll take a while for them to sell their positions given how low volumes have been” in recent days. Trading on Sunday has increased because of the uncertainty, he said.

Dubai Selloff

Al Ramz has mostly cash positions, and is looking at levels to re-enter the market, “which we believe we haven’t reached yet,” El Atabani said.

About 320 million shares were traded on the DFM General Index, almost twice the 20-day average. Real estate companies and banks dominated the selloff in Dubai.

Dar Al Takaful PJSC, an insurer, was one of only two stocks to buck the declines, adding 15 percent, the maximum permitted. The Shariah-compliant company, which is planning a rights issue, said in a statement to the exchange it wasn’t aware of a reason for the gains. The shares advanced 43 percent last week.

Saudi Bond

On Saudi Arabia’s main gauge, 356 million shares were exchanged, 67 percent more than the 20-day average. Out of the Tadawul’s 172 index members, 149 fell. The Saudi Arabian Monetary Agency, the country’s central bank, has revised its investment policy related to euro- and sterling-denominated assets, the Saudi Press Agency reported.

“The U.K.’s decision to exit Europe may impact Saudi Arabia via the oil-price drop and cause risk aversion in emerging markets” said John Sfakianakis, the Riyadh-based director of economic research the Gulf Research Center, a think tank. “If the overall economic contagion is more globalized, the ripple effects will be felt in Saudi Arabia and the wider region as equities drop, commodity prices fall and volatility increases.”

Brent crude, a benchmark for half the world’s oil, fell 4.9 percent on Friday to $48.41 per barrel. Oil prices have declined more than 50 percent over the past two years, putting a strain on Saudi Arabia’s finances.

After tapping the local bond market last year for the first time since 2007, the kingdom is planning its first sovereign dollar offering. It appointed JPMorgan Chase & Co., HSBC Holdings Plc and Citigroup Inc. for its international debt sale, people with knowledge of the matter said on Sunday.

Meanwhile, the three-month Saudi Interbank Offered Rate, a benchmark used to price loans, fell for the second time in three trading days. The rate had been rising as liquidity tightened in the kingdom’s banking system.

Gulf Declines

Fourteen of the BGCC gauge’s 200 members rose. Qatar’s QE Index retreated 1.2 percent, ending an eight-day winning streak. Oman’s MSM 30 Index slipped 0.6 percent, the first drop in four days. Abu Dhabi’s ADX General Index lost 1.9 percent, the most since May 3. Bahrain’s BB All Share Index fell 0.7 percent and Kuwait’s SE Price Index sank 1.1 percent.

The impact on GCC markets is on two fronts, according to Mohammed Ali Yasin, managing director of NBAD Securities LLC in Abu Dhabi.

“One is the negative sentiment from the uncertainty and major losses in U.S. and European markets,” he said by e-mail. “The second is the re-balancing effects of the global portfolios that invest in emerging markets, which our GCC markets are part of.”

The MSCI Emerging Market Index closed 3.5 percent lower on Friday.

Egypt Plunge

Egypt’s EGX 30 Index tumbled 5.5 percent, the most since January, on volume almost 50 percent more than the gauge’s 20-day average. Commercial International Bank Egypt, the nation’s biggest publicly traded company, was the biggest contributor to the decline, with a 4.3 percent drop.

The severity of losses in Egyptian stocks is “catching everyone by surprise, investors are imagining every scenario up to the break-up of the whole European Union,” said Hesham Wafa, a Cairo-based institutional sales trader at Mubasher Trade. “It’s clearly an overreaction though, as is usually the case in Egypt. We’re already seeing foreign buyers take advantage of the dip, and we expect a bounce-back as early as tomorrow.”

The stock gauge’s 14-day relative strength index fell below 30 for the first time since January, a sign to some investors that equities have fallen too fast and may be poised to rebound.

Don’t Panic

The plunge prompted the head of the stock exchange, Mohamed Omran, to issue a rare statement asking investors “not to panic,” according to the state-run Middle East News Agency. Egypt’s market has “been through worse,” which has helped strengthen the ability of market participants to deal with such crises, he said.

Separately, Beltone Financial Holding, the Egyptian investment bank owned by billionaire Naguib Sawiris, filed a lawsuit against the heads of the country’s regulator and stock exchange following the repeated cancellation of trading in its shares. Even though the stock dropped for a seventh day, the longest losing streak since August, it’s up 116 percent this year, compared with a 2.2 percent loss for the EGX 30 Index.

Israeli Slide

Israel’s TA-25 Index slumped 3.2 percent at the close in Tel Aviv to the lowest level in more than four months. The gauge is less than 10 points away from entering a so-called bear market, when a measure declines 20 percent from a recent peak. Every company on the index dropped. 

“Relative to Europe, the declines in the Israel market are fairly muted as the impact is expected mainly from the risk a global economic slowdown could have on exports,” said Yaniv Pagot, the head of strategy at Ayalon Group Ltd., an institutional investor in Ramat Gan, Israel. “If investors are now thinking where to be, the Israeli market is not so bad as there won’t be much impact on companies’ profitability and financial stability isn’t at risk.”

Still, Israel’s Finance Minister Moshe Kahlon said the government has set up a situation room together with the central bank to monitor developments following the U.K. vote. The EU is Israel’s largest trading partner.

The yield on the country’s 6.25 percent benchmark bonds due October 2026 fell 12 basis points, the most since September, to 1.71 percent.

The shekel sank 1.8 percent on Friday, the most since January 2011, while the cost to insure Israeli bonds against non-payment using credit-default swaps rose 10 basis points, the most since June 2013, to 85 basis points, the highest level since February.

Shekel forward-rate agreements for three months, which are used to speculate on rate moves, dropped the most since February 2015 on Friday to 0.055 percent, as some traders speculated the Bank of Israel may lower borrowing costs during the period.

The benchmark rate has been unchanged at a record low of 0.1 percent for more than a year. The nation’s central bank will announce its interest-rate decision at 4 p.m. local time on Monday.

Before it's here, it's on the Bloomberg Terminal.