The snowball effect: Saudi, UAE stock markets tumble after global sell-off

469Stock markets in Saudi Arabia and the United Arab Emirates fell sharply on Sunday as declines on global bourses sparked a broad sell-off in the Gulf region.

Saudi stock benchmark Tadawul All Share Index  retreated 6.51 percent to close at 10,145.38 points. After breaking through immediate chart support at the September low of 10,614 points, the benchmark may test the 100-day average at 10,238 points.

All sectoral indices ended in red at the close of trading, with Insurance incurring the biggest loss at 8.09 percent, followed by Building & Construction and Industrial Investment at 7.61 percent and 7.48 percent, respectively.

Petrochemicals giant Saudi Basic Industries Corp (SABIC) was the main drag, dropping 4.3 percent. Al Rajhi Bank fell 3.7 percent.

Elsewhere, In Dubai, the index tumbled 6.5 percent, its biggest daily decline since August 2013. Abu Dhabi’s benchmark, which is usually less volatile, dropped 3.5 percent, its worst day since January 2011.

Global markets took a hit on Friday as investors fled to the safety of government bonds after a raft of weak indicators from Europe and China collided with concerns about the US Federal Reserve’s plans to reduce monetary stimulus.

Investors in the UAE took that as a cue to book profits, which at the end of the previous session stood at 47 percent year-to-date for Dubai and 18 percent for Abu Dhabi.

The pull back then snowballed due to panic selling and, possibly, margin calls, according to market players.

“We might see some more profit-taking in the coming sessions,” said Sebastien Henin, head of asset management at The National Investor in Abu Dhabi.

Bourses in the Middle East look set to come under pressure on Sunday after risk aversion drove down global equity markets and oil prices hit a four-year low on Friday.

Although oil-rich Gulf states can easily deal with a temporary decrease in oil prices thanks to their large reserves and strong private sectors, a sharp drop - $25 per barrel since June - is likely to affect local investors’ mood.

Markets in Saudi Arabia, Kuwait, Qatar and Oman were closed throughout last week for the Eid Al-Adha holiday, and the global market environment has deteriorated considerably during that period, so they are likely to play catch-up to falls elsewhere.

Bourses in the UAE largely followed the negative global lead last week, while Egypt was in a bearish mood - although cheaper oil is positive for the Egyptian economy, weaker global economic growth is negative, as is the possibility that Gulf investors could become more risk-averse.

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