World Economy

Arabs Reject Moody’s Outlook

Arabs Reject Moody’s OutlookArabs Reject Moody’s Outlook

Stock markets in the Persian Gulf Arab states look set to rise on Sunday, shrugging off Moody’s decision to cut its outlook for the debt ratings of several Persian Gulf Arab states, after oil prices rallied further.

Saudi Arabia’s Aa3 rating was placed on review for a possible downgrade, Moody’s said late on Friday; the United Arab Emirates, Kuwait and Qatar were also put on review, while Bahrain’s rating was cut to junk, Reuters reported.

But investors may view this as a belated reaction to old news; more important is that Brent crude jumped 4% on Friday to near $39 a barrel. This is likely to strengthen sentiment that oil prices have finally bottomed and that Persian Gulf Arab economies will not face further negative surprises.

“This is not really new news,” a Jeddah-based analyst said of the Moody’s ratings. “I believe the bottoming of oil prices will outweigh the negative impact of the cut in outlook to negative.”

Last week bourses in the Persian Gulf Arab states were lifted by higher volumes in small and mid-sized stocks that are largely favored by local traders. Riyadh’s and Dubai’s indexes each rose 4% last week, although in Dubai most turnover was concentrated in volatile builder Arabtec, which soared 42% last week in speculative trade.

Short-term technicals have also turned positive for Persian Gulf Arab markets, with Saudi Arabia triggering a bullish right triangle by breaking its January peak last week, and Dubai confirming a reverse head & shoulders pattern.

Although Egypt’s index rose for the first time in four days on Thursday, most stocks were sluggish as investors remain hesitant to buy the market because of a possible interest rate hike, after bond yields rose, and a weakening currency in the black market, which has increased speculation about a possible devaluation.

Egypt’s currency crisis could spiral out of control if the government does not devalue quickly, a measure that although unpalatable is the best medicine for an ailing economy, analysts said recently. The longer it waits, the more acute the crisis will grow. People are reluctant to buy the Egyptian pound because it is pegged artificially high against the US dollar. This has led to an acute shortage of dollars, which, in turn, has weakened the economy, creating a downwards spiral.