Markets Rout, Geopolitical Tension Weigh on Saudi Arabia, U.A.E. and Qatar
07 Janeiro 2016 - 4:08PM
Dow Jones News
By Nikhil Lohade
DUBAI--Prices of Persian Gulf stocks closed sharply lower on
Thursday, joining a global rout of financial markets, as sliding
oil prices have heightened concerns about the region's
petroleum-dependent economies.
The stock market in Saudi Arabia, the world's top oil exporter,
fell 4.5% to close at 6225.22 on Thursday, as crude oil prices
plumbed multiyear lows. Dubai shares were down 3.4% at 2966.43,
while neighboring Abu Dhabi's market slipped 3.2% to 4134.97 and
Doha's main index dropped 3% to 9767.22. Other Gulf markets also
finished in negative territory.
"Falling oil and weak leads from China and the global markets
are all weighing on regional sentiment," said Sébastien Hénin, head
of asset management at Abu Dhabi-based The National Investor. "Oil
is the main problem given how much the region depends on it." The
region depends mostly on oil and gas sales to finance the state
budgets. But cheap oil has sharply eroded the Gulf states' ability
to continue their massive spending at home, a driver of the local
economies.
Saudi Arabia exports about 7 million barrels of oil a day, and
the proceeds from those sales make up around 90% of the
government's revenue. The kingdom was forced to run a record
deficit of nearly $98 billion last year, and late last month it
announced expenditure and subsidy cuts for 2016 as it attempts to
cope with cheap oil. The 2016 budget sets the Saudis up for a
period of fiscal consolidation, said economists at Capital
Economics, noting the government appears to have assumed that oil
prices will average $38 a barrel this year.
But oil prices have since fallen further, sparking concern the
kingdom and other regional governments will have to adopt tougher
economic measures to deal with falling oil income, traders say.
Heightening diplomatic discord between Saudi Arabia and its allies
vis-a-vis Iran is also weighing on sentiment as investors worry
about escalating geopolitical tensions in the region, Al Masah
Capital noted.
Petrochemical stocks were among the biggest losers across the
region. In Saudi Arabia, the Gulf's largest stock market, shares of
heavyweight petrochemical company Sabic were down 3.2% in price at
68.25 riyals ($18.2) on Thursday.
Most regional markets closed with sharp losses last year, as
investors worried about the impact of cheap oil on the local
economies. "While [Gulf Cooperation Council] governments have
expressed their commitment to support growth in the non-oil sector
by sticking to their current development spending plans and
maintaining large deficits in the medium term, a prolonged period
of low oil prices could force governments to reduce capital
spending and benefits, and could put pressure on liquidity,"
analysts at National Bank of Kuwait said in a note to clients this
week.
One option to bolster their coffers and improve liquidity,
analysts say, is for Gulf countries to sell down their stakes in
some of the large state-owned companies in important sectors such
as oil and gas, as well as infrastructure. Some officials have
indicated such moves were being considered, as governments look for
ways to unlock cash.
Saudi Arabia is considering selling shares in its state-owned
oil group Saudi Arabian Oil Co., according to Deputy Crown Prince
Mohammed bin Salman, who heads the country's new economic council.
"This is something that is being reviewed, and we believe a
decision will be made over the next few months. Personally I'm
enthusiastic about this step," the prince said in a recent
interview with The Economist.
The prince, who is expected to unveil a comprehensive five-year
economic plan for the kingdom in early 2016, didn't provide further
details of how any potential initial public offering would be made.
Saudi Aramco didn't immediately respond to a request for
comment.
Write to Nikhil Lohade at nikhil.lohade@wsj.com
(END) Dow Jones Newswires
January 07, 2016 12:53 ET (17:53 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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