Dubai stocks dropped into a bear market, leading declines across most Middle Eastern equities after a U.S. labor report increased expectations that the Federal Reserve will lift interest rates this year, pushing Brent crude lower.
The DFM General Index slid 3 percent to 3,347.23, the lowest level since December and the biggest drop in more than two months. The gauge has entered a bear market after falling more than 20 percent since a peak in April. Emaar Properties PJSC, the real estate developer with the largest weighting on the measure, led the declines with a 4.7 percent retreat. Saudi Arabia’s Tadawul All Share Index lost 1.4 percent at 1:34 p.m. in Riyadh.
“When you see an aggressive drop in oil price, it puts people on edge,” said Ahmed Shehada, executive director for advisory and institutions at NBAD Securities LLC, a unit of the U.A.E.’s biggest bank. “In addition, there are the banks’ results; a lot of operating income has dropped and this is having” an effect across the board, he said.
The U.S. added 271,000 non-farm jobs in October, surpassing the 185,000 predicted in a Bloomberg survey of economists, while the unemployment rate fell to a seven-year low. The report sparked a dollar rally that led to the drop in Brent and boosted expectations of an interest rate move by the Fed to 68 percent, data compiled by Bloomberg shows. Monetary policies in the region are influenced by Fed decisions.
Brent crude, a pricing benchmark for half the world’s oil, closed 1.2 percent lower on Friday at $47.42 a barrel. The six- nation Gulf Cooperation Council is home to about 30 percent of the world’s proven oil reserves and most governments rely on income from crude to fund spending.
S&P Cuts Ratings
Saudi Arabian stocks were headed for the lowest close in almost three years. Chemical and steel manufacturer Saudi Basic Industries Corp. and Al Rajhi Bank, which holds the biggest weighting on the gauge, led the retreat.
Standard & Poor’s cut the credit ratings of the eight Saudi Arabian banks that it covers last week, citing increased risks to the kingdom’s economy because of lower crude revenue.
“Most foreign institutional investors are more inclined to sell banks because they have an external view of the market,” said Muhammad Shabbir, who manages about $550 million as the head of regional equities at Rasmala Investment Bank Ltd. in Dubai. “We’re already a bit underweight on Saudi now, but the market has the capacity to bounce back, particularly towards the end of year when many companies pay dividends.”
Flight Suspensions
Egypt’s benchmark EGX 30 Index dropped 1.7 percent, the most in two months. The theory that a bomb took down a plane full of Russian passengers last month gained traction over the weekend, threatening tourism in the most populous Arab nation. Income from foreign visitors is a pivotal part of President Abdel-Fattah El-Sisi’s plan for economic recovery.
“The flight suspensions by Britain and Russia in the wake of the crash are having a real impact on the market, because those are two of the biggest groups of tourists and sources for hard currency in Egypt,” said Sherif Shebl, an equities trader at Cairo-based Pharos Holding. “The pound is already under pressure, and this adds to the negative sentiment for investors who already anticipate a devaluation.”
Egypt, which relies on tourism as one of main sources of foreign reserves, is suffering from a dollar shortage that has forced the central bank to devalue the pound by 11 percent this year. The currency still trades at a discount of more than 6 percent in the black market, and almost 10 percent according to the differences in prices of stocks traded locally and abroad.
Taqa Slides
Abu Dhabi’s ADX General Index fell 1.6 percent. Abu Dhabi National Energy Co., known as Taqa, dropped 2.1 percent after it said it will cut 100 jobs from its offshore oil operations.
The Qatari QE Index slid 1.9 percent to the lowest in two months. Gauges in Bahrain and Jordan retreated 0.3 percent and 0.2 percent respectively, while Oman’s MSM 30 Index fell 0.1 percent. Kuwait’s SE Price Index bucked the trend, rising 0.1 percent.
Israel’s TA-25 Index rose 0.3 percent, led by Perrigo Co. and Opko Health Inc., dual-listed health stocks that gained in U.S. trading on Friday.
The Tel Aviv Oil & Gas Index advanced to the highest since August before reversing. A local newspaper reported over the weekend that Prime Minister Benjamin Netanyahu will use his new authority as economy minister to bypass the country’s antitrust regulator and approve a long-stalled policy to govern Israel’s natural gas industry.
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