Mideast markets may stay volatile as floor for oil still unclear

Brent crude is trading below $60 a barrel. Its plunge has sent Gulf retail investors into a panic. (Shutterstock)

Middle East stock markets look set to stay volatile on Wednesday as oil prices are still far from establishing any clear floor, and key producers indicate they have no plans to reduce output.

Brent crude is trading below $60 a barrel. Its plunge has sent Gulf retail investors into a panic; indiscriminate sell-offs have erased year-to-date gains in most stock markets and wiped out $250 billion in stock value since the end of October.

Investors fear that Gulf governments could reduce spending in line with falling oil revenues, which could slow overall economic growth. Although economists and government officials say this is unlikely, uncertainty may persist until investors see the actual state budgets for the next fiscal year.

After Tuesday's sharp drops, some investors may be tempted to buy back stocks, but any rebound looks likely to run into heavy selling pressure.

A number of stocks in the region, especially in Dubai and Saudi Arabia, tumbled their daily 10 percent limits on Tuesday, indicating potential weakness ahead and the absence of buying interest.

"It is difficult to say how far we are going on the lower side, but one thing is sure - that the panic selling may continue further and the decline is similar to that seen in the year 2008," NBAD Securities said in a note.

Dubai's bourse plunged 76 percent in 2008 as the emirate's companies struggled to repay debts and property prices crashed.

This time around, however, debt and property markets are calm, and the volatility has focused on equities.

Geographically, though, negativity has spread from the Gulf across the whole Middle East, and markets in oil importing countries such as Egypt and Morocco have also fallen in the last few weeks.

Morocco's central bank cut its benchmark interest rate to 2.5 from 2.75 pct on Tuesday to boost growth, and the move may lift the stock market. which has fallen 5.7 percent from its November peak.

The index formed a bullish engulfing pattern on daily candlestick charts on Tuesday, suggesting the decline of the past few weeks might be reversing.


Last Update: Wednesday, 20 May 2020 KSA 09:44 - GMT 06:44