Saudi Stocks Head Into Bear Market on OPEC Output; Dubai Slumps

Saudi Arabian stocks headed for a bear market after OPEC took no action to stem a slump in oil, triggering a rout in Middle Eastern equity markets.

The Tadawul All Share Index (SASEIDX) retreated 3.9 percent to 8,705.73 at 11:44 a.m. in Riyadh. The measure for the Arab world’s biggest bourse has slipped 22 percent from a high on Sept. 9. Dubai’s DFM General Index fell 4.9 percent, the most since Oct. 16. Abu Dhabi’s ADX General Index declined 2.8 percent, Oman’s MSM 30 Index lost 5.9 percent and Qatar’s QE Index fell 4.7 percent.

Oil tumbled to the lowest since May 2010 after the 12-nation Organization of Petroleum Exporting Countries maintained its collective production ceiling of 30 million barrels a day. Brent crude, the benchmark for more than half the world’s oil, lost 13 percent last week, the biggest weekly plunge since May 2011, to $70.15 a barrel, the lowest since May 2010. Saudi stocks are plunging four months after the country announced plans to give foreigners access to the bourse for the first time.

“Investors don’t like the potential macro backdrop if oil continues to slide, which is being reflected in the markets,” Ali Khan, chief executive officer of London-based BGR Asset Management LLP, said by e-mail. “Investors are afraid if oil stays where it is, it will negatively impact the government revenues, thus creating potential headwinds on government spending.”

Spending Plans

Saudi Arabia, OPEC’s biggest oil exporter and the largest Arab economy, has spending plans valued at more than $500 billion. It needs prices to average $99.2 a barrel this year to balance its budget, according to Deutsche Bank AG. The six-nation Gulf Cooperation Council, which includes Saudi Arabia and the United Arab Emirates, is home to about a third of the world’s proven oil reserves.

Saudi Arabia, Oman and Bahrain risk running budget deficits next year if their spending plans aren’t adjusted to reflect the decline in crude prices, Masood Ahmed, director of the Middle East and Central Asia department at the International Monetary Fund, said last month.

The desert kingdom is opening one of the most restricted major stock exchanges as King Abdullah pushes to diversify the economy from oil and create new jobs. It plans to grant foreigners, who are barred from directly buying and selling domestic assets, access to the $522 billion market next year.

RSI Drops

The country’s bourse may be added to MSCI Inc.’s developing-markets gauge by 2017 at the earliest, Sebastien Lieblich, executive director at MSCI Index Research, said in July, adding the nation may account for about 4 percent of the index.

The Tadawul’s 14-day relative strength fell to 22, the lowest since March 2011, today. A level below 30 indicates to some analysts that securities have fallen too fast and are poised to rise. The index is headed for the biggest monthly slump since 2008.

Saudi Basic Industries Corp. (SABIC), the world’s biggest petrochemical producer and the stock with the second-highest weighting on the main gauge, fell 6.8 percent to 91 riyals, the lowest since June 2011. Al Rajhi Bank, Saudi Arabia’s biggest lender by market value, fell to 58.75 riyals, the lowest in two years.

’Panic Selling’

In the U.A.E., home to the third-biggest proven oil reserves in the GCC, Dubai Islamic Bank PJSC retreated 6.9 percent. Emaar Properties PJSC, the developer of Dubai’s Burj Khalifa, the world’s tallest tower, slumped 4.1 percent, and Arabtec Holding Co. dropped 7.1 percent.

Amanat Holdings PJSC, a Dubai startup investment company, declined 16 percent in its trading debut, even after Chairman Faisal Bin Juma Belhoul said the company may make an announcement on acquisition plans in the first quarter, and is seeking double-digit rates of return on investments.

“It’s mostly panic selling today,” Tariq Qaqish, head of asset management at Dubai-based Al Mal Capital PSC, said by phone. “Investors are worried about a possible slowdown in government spending, which would affect corporate earnings going forward.”