Dubai’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% to close at 3,430.93, the lowest level since Aug. 24. Saudi Arabia’s Tadawul All Share Index lost 1.5% in Riyadh 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, Bloomberg reported.
“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 (Persian) Gulf Cooperation Council. This has implications for the costs of borrowing,” he added.
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% slide in the past 12 months strains government spending in a country that gets at least 80% 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.
On Friday, Brent crude gained 1.6% to $49.56 a barrel, paring its decline in the past 12 months to 42%.
Dubai’s Emaar Properties PJSC, the company with the largest weighting on the gauge, led the retreat with a 3.9% drop. Dubai Islamic Bank, the UAE’s biggest Shariah-compliant lender, slipped 2.2%.
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.
“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.”
