Dubai’s stocks fall to two-month low on Saudi’s debt downgrade

Dubai skylineDubai’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 per cent to close at 3,430.93, the lowest level since August 24.

Saudi Arabia’s Tadawul All Share Index lost 1.1 per cent 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.

Brent crude gained 1.6 per cent on Friday to $49.56 a barrel, paring its decline in the past 12 months to 42 per cent.

Dubai’s Emaar Properties PJSC, the company with the largest weighting on the gauge, led the retreat with a 3.9 per cent drop. Dubai Islamic Bank, the U.A.E.’s biggest Shariah-compliant lender, slipped 2.2 per cent. 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.

Yesterday 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 three per cent lower at 1.6 dirhams.

Abu Dhabi’s ADX General Index fell 0.5 percent and Qatar’s gauge slipped 0.2 per cent. Bahrain’s All Share Index and Kuwait’s measure both rose 0.1 percent. Oman’s MSM 30 Index climbed 0.3 per cent led by National Bank of Oman SAOG’s 7.3 per cent 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.”

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