Qatari stocks led a retreat in Middle Eastern markets as oil’s decline to a seven-year low, scant evidence of a pick-up in Chinese growth and the prospect of a U.S. interest-rate increase next week unsettled investors across the region.
The QE Index sank 3.7 percent to close below 10,000, a key support level, for the first time since November 2013 and Saudi Arabia’s Tadawul All Share Index slumped to the lowest since 2012 as of 2:42 p.m. in Riyadh. The DFM General Index chalked up the longest losing streak in a year on investor concern that companies in Dubai, the Middle East’s commercial hub, may suffer if Gulf Arab governments reduce spending next year. The ADX General Index in Abu Dhabi, home to about 6 percent of the world’s proven oil reserves, lost 2.1 percent.
Emerging markets posted their worst week since September as investors brace for the Federal Reserve’s meeting and look for signs of an economic rebound in China. Markets across the six- member Gulf Cooperation Council are being additionally roiled by a rout in crude prices that’s stoking concern countries will pare back budgets. Oil, their main source of revenue, has extended losses since the Organization of Petroleum Exporting Countries chose to keep flooding the market at its Dec. 4 meeting.
“Welcome to the new normal: lower growth, lower government spending and more focus on core strategic infrastructure projects,” said Tariq Qaqish, the head of asset management at Dubai-based Al Mal Capital PSC. The company is focused on investments in stocks that are “negatively correlated to the drop in oil prices, including those in the airlines, telecommunications, logistics, and healthcare sectors,” he said.
The Bloomberg GCC 200 Index, which tracks 200 of the biggest publicly-traded companies in the Gulf, slid to the lowest level since April 2013. That cut its price to projected 12-month earnings ratio to 10.9 times compared with 10.8 times for the MSCI Emerging Markets Index.
Brent crude, a benchmark for half the world’s oil, sank to $37.93 a barrel on Friday, the lowest level since December 2008. The S&P 500 Index fell the most last week since August. If the Fed raises interest rates Dec. 16, it will be the first increase in almost a decade.
“Oil weakness, the global markets selloff and margin calls are starting to have a big impact now,” said Hisham Khairy, the Dubai-based head of institutional trade at Mena Corp. Financial Services LLC, the emirate’s biggest brokerage. “There is no sector to buy in our markets, so staying away from markets is the best strategy at the moment.”
MSCI’s developing markets gauge fell 4.8 percent last week, while a measure of nine Chinese raw-material producers traded in Hong Kong fell to the lowest since December 2008, as investors speculated that growth in domestic consumption and services will fail to offset a manufacturing slowdown in the world’s second- largest economy.
Qatar’s gauge is headed for its worst year since 2008 as an indicator of the rout’s momentum, known as the directional movement index, soared to the highest on record.
“Qatar’s been seeing the worst end of the stick and the lack of interest from foreigners has really put the market under pressure,” Ahmed Shehada, executive director for advisory and institutions at NBAD Securities LLC, said last week. “Qatar’s companies are much more reliant on the government in terms of spending than the U.A.E. or Saudi Arabia, where companies can rely on its population more as consumers and investors.”
Industries Qatar QSC, which operates industrial complexes in petrochemicals and steel industries, was one of the biggest contributors to the QE Index’s losses. The stock, which has the third-heaviest weighting on the gauge, fell 5 percent to the lowest level in more than five years.
The nation’s bourse will approve and announce rules for margin trading, the practice of buying stocks with borrowed money, in the next few days, Reuters reported on Wednesday, citing Chief Executive Officer Rashid al-Mansoori.
The Tadawul lost 3.2 percent, led by Saudi Basic Industries Corp, one of the world’s biggest producers of petrochemicals. The gauge’s 14-day relative strength index fell below 30 points for the first time in more than a month, signaling to some investors that it might be oversold. Sabic retreated 3.4 percent, the most since Nov. 15.
“There is some concern from investors of how much further oil can go down from here over the short term,” said Riyadh- based Muhammad Faisal Potrik, the head of research at Riyad Capital.
Emaar Economic City was one of six stocks to rise in Saudi Arabia after King Salman appointed his son, deputy Crown Prince Mohammed bin Salman, as chairman of the state-controlled Economic Cities Authority. The body has full administrative responsibilities for development and oversight of Saudi economic cities. The shares surged 9.8 percent, set for the highest close since July.
Dubai Islamic Bank led the drop in the emirate’s benchmark gauge, retreating 3 percent to the lowest in almost a year. The lender is the second-biggest component of the emirate’s gauge, accounting for about 15 percent. The index is the most erratic in the GCC, according to its 30-day volatility measure.
In Cairo, the benchmark EGX 30 Index lost 3.7 percent, led by Commercial International Bank Egypt SAE, the nation’s biggest publicly-traded lender. The country, running low on dollars, plans to hold talks with Saudi Arabia, U.A.E. and Kuwait to secure more aid and investments, according to a government official who asked not to be named.
The decline in Egypt’s foreign currency reserves, which covers less than three months of imports, has raised pressure on the currency of North Africa’s biggest economy, leading to speculation that it will be devalued. President Abdel-Fattah El- Sisi’s allies in the Gulf already helped with about $6 billion earlier this year.
Investors are waiting for “the realization of these aid talks,” said Radi Elhelw, the Cairo-based executive director for Arqaam Securities Brokerage SAE. “Current oil prices and talk of austerity measures in Saudi Arabia and the United Arab Emirates make people skeptical.”
Israel’s TA-25 Index dropped 2.1 percent to a two-month low. Nice Systems Ltd. led the decline, tracking losses on their U.S.-traded shares.
The Tel Aviv Banking Index fell to a seven-month low amid a report that the panel charged with increasing banking competition may recommend stripping credit card units from the country’s biggest lenders.