Oil recovery stabilizing Mideast markets

A rebound in the oil price may help Middle East stock markets stabilize on Monday after sharp drops in the past two trading days, but equities investors are likely to remain cautious after their earlier attempts to catch the bottom failed.

Brent crude climbed above $62 per barrel on Monday, after hitting 5-1/2-year lows of $60.28 earlier, as traders began pricing in expectations of improving global manufacturing data to be published later this week.

Gulf markets have largely moved in line with oil prices for the last few weeks as investors became worried that a sharp decline in oil revenues could trigger government spending cuts and slow non-oil growth.

While analysts and fund managers believe this is unlikely to happen in countries other than Oman and Bahrain, they say stock markets will remain under pressure from retail investors in the near future - until there is some evidence that government spending and corporate profit growth is staying strong.

“Upcoming catalysts which will help determine the direction of markets will be the 2014 results along with the announcement of the Saudi budget for 2015,” Sherif El Haddad, manager of the EFG-Hermes Middle East and Developing Africa Fund, said in a monthly report on Monday.

Saudi Arabia is expected to announce its budget near the end of this month. Qatar's government said on Sunday it saw 2015 economic growth at 7.7 percent, just slightly below the June forecast of 7.8 percent, but that did not stop the Doha bourse from tumbling 5.9 percent.

Some regulators have now started taking steps to curb the markets' volatility. Abu Dhabi's bourse will start on Monday to temporarily suspend stocks that fall by 5 percent under new rules introduced on Sunday.

In Kuwait, Finance Minister Anas al-Saleh said on Sunday that a state fund designed to support the market was "currently intensifying its action in the bourse according to its objectives", adding that it had been investing in 40 stocks. However, analysts do not believe the fund by itself can lift the market.