Gulf stock markets mostly fell on Wednesday amid concern over weak oil prices, but Saudi Arabia regained some stability after a plunge on the previous day caused by fears that the government would tighten fiscal policy considerably. The Saudi index had sunk 3.0 percent on Tuesday after the oil minister confirmed the government was considering whether to raise domestic energy prices - one of several steps that it may take next year to reduce a huge budget deficit caused by low oil prices.
On Wednesday, the index slipped as low as 6,991 points during the day but closed up 0.3 percent at 7,118 points. It has technical support at its August low of 6,921 points. Petrochemicals stayed soft, with that index dropping 0.2 percent; one possible fiscal reform is raising gas feedstock prices for the industry. But most other stocks rose, with Alinma Bank climbing 2.0 percent and Emaar Economic City, developer of a big industrial zone, adding 3.7 percent.
Industry sources told Reuters that any hike in energy prices would be gradual and cautious. So analysts do not expect a recession. "Despite recent statements from the finance minister about a moderation of government expenditures in 2016, we expect that government expenses will continue to support domestic economic activity in the next 18 months," Moody's Investors Service said. It predicted government spending would grow 2 percent in 2016 and 4 percent in subsequent years, down from a compound annual growth rate of 14 percent from 2010 to 2014. As a result, non-oil gross domestic product will still expand 3.3 percent next year, it said.
But even a slowdown in the growth of state spending, combined with tighter banking system liquidity as the government sells bonds to banks to finance its deficit, could be hard for the market to digest. "We are now becoming more concerned about a very significant slowdown in Saudi Arabia given a capex squeeze and the potential increase in fuel and energy prices, especially when coupled with a potential tightening of monetary policy as SAIBOR-LIBOR spreads widen," Arqaam Capital said in a note.
"We continue to be underweight on cement, building materials, industrials and petrochemicals, but play banks on higher net interest margins." Dubai's stock index fell 0.9 percent as Dubai Islamic Bank slipped 1.1 percent, even though the bank beat analysts' forecasts with a 44 percent increase in third-quarter net profit.
Dubai Financial Market, which reported weak third-quarter earnings on Monday, tumbled 3.3 percent; the stock, often seen as a bellwether for the health of the overall market because its earnings depend on the level of trading commissions, has dropped 18 percent in the past seven trading days. Dubai-based courier Aramex lost 4.4 percent after reporting a 7 percent rise in third-quarter net profit to 74.6 million dirhams ($20.3 million); analysts had forecast 79.7 million to 88.5 million dirhams. Abu Dhabi's index slid 1.6 percent as First Gulf Bank sank 3.9 percent. It posted a 0.4 percent drop in third-quarter net profit to 1.42 billion dirhams ($387 million), missing analysts' average forecast of 1.51 billion dirhams.
Qatar fell 0.6 percent as Mesaieed Petrochemical slipped 1.2 percent. It reported that net profit for the first nine months of 2015 fell 43 percent from a year earlier, although it also said third-quarter earnings rose from the second quarter because of higher selling prices, improved sales volumes and a tax refund. Egypt slipped 0.7 percent in line, but GB Auto surged 6.0 percent. It had gained 2.1 percent on Tuesday after reports it had signed an agreement with China's Chery International to distribute Chery cars in Egypt.
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