MIDEAST STOCKS-Most Gulf markets stabilise; Saudi extends drop

DUBAI (Reuters) – Most stock markets in the Gulf stabilised on Wednesday after falling sharply earlier in the week in response to oil’s slide, but Saudi Arabia’s equities index dropped again, wiping out the remainder of its gains this year.

Brent crude held near $66 a barrel until most bourses in the region closed on Wednesday, but then fell further as producers forecast lower demand for their oil next year.

Saudi Arabia’s stock market, which closes later than others in the Gulf, reacted by dropping 2.5 percent to 8,411 points, its lowest level in almost a year. The benchmark, which at one stage was up 31 percent this year, is now down 1.5 percent year-to-date.

The Saudi market is particularly vulnerable to cheap oil because petrochemical firms, which make up roughly a quarter of its capitalisation, face losing the competitive advantage which subsidised feedstock gives them over foreign rivals.

Saudi Basic Industries, the sector’s leader, tumbled 6.0 percent on Wednesday and last traded at 81.25 riyals, its lowest level since June 2010.

Other sectors were hit hard too and most stocks declined. The banking sector index dropped 2.1 percent and top lender National Commercial Bank tumbled 3.5 percent.

“Recently, concerns have surfaced about whether the slump in oil prices could lead to strains in financial institutions,” Jason Tuvey, Middle East economist at London-based Capital Economics, said in a note on Wednesday.

But Gulf banks’ exposure to energy companies is very low, and the threat of currency devaluations is almost non-existent thanks to huge external reserves. Meanwhile government spending – the key driver of economic growth – is likely to remain stable in most countries, although Oman and Bahrain are possible exceptions, Tuvey said.

“All told, then, lower oil prices don’t seem to pose a significant threat to banking sectors in the Gulf,” he said.

In a report on Tuesday, Fitch Ratings said public sector spending would continue to support a favourable macroeconomic outlook and business opportunities for Saudi banks in 2015.

QATAR, UAE

Other markets in the region did much better on Wednesday. Qatar’s index inched down just 0.1 percent and a number of stocks pared early losses to move into positive territory. Industries Qatar rose 1.1 percent and telecommunications firm Ooredoo jumped 2.7 percent.

Dubai’s stock index closed 0.2 percent down, having dropped as much as 1.4 percent shortly after the opening. The benchmark lost 9.2 percent earlier this month in a broad sell-off which may now have attracted bargain-hunters.

But Dubai Parks and Resorts, which listed on Wednesday, closed 9.0 percent below its initial public offer price of 1.00 dirham, indicating that retail investors, who have been big net sellers of Dubai shares in recent days, were in no rush to open new positions.

Abu Dhabi’s bourse edged up 0.4 percent on the back of lenders such as Abu Dhabi Commercial Bank, which climbed 6.7 percent.

Oman’s market edged down 0.7 percent. The country’s Shura Council, an advisory body to the government, approved a proposal to totally ban alcohol in the country, including for tourist establishments, Omani media reported.

It is unclear whether the cabinet will actually take that step, or when it will consider the proposal, but a ban could hit the tourist industry. Shares in Gulf Investment Services , a firm with interests in the hospitality sector, dropped 2.6 percent.

Outside the Gulf, Egypt’s market edged down 0.8 percent as most property stocks pulled back after several strong sessions. Up 39 percent year-to-date, the market is now the top performer among major Middle East bourses.

WEDNESDAY’S HIGHLIGHTS

DUBAI

* The index edged down 0.2 percent to 3,883 points.

ABU DHABI

* The index edged up 0.4 percent to 4,583 points.

SAUDI ARABIA

* The index fell 2.5 percent to 8,411 points.

EGYPT

* The index slid 0.8 percent to 9,404 points.

QATAR

* The index slipped 0.1 percent to 12,340 points.