Gulf stock markets dependent on foreign funds, such as Dubai and Qatar fell on Wednesday as the region absorbed the shock of Donald Trump's US election win and prepared for more volatile trading ahead. Trump, feared by markets because of his views on trade, immigration and taxation, may enact policies that could affect the oil price, the strength of the dollar and capital flows, said Monica Malik, chief economist of Abu Dhabi Commercial Bank.
"More uncertainty could place downside pressure on oil prices and capital flows. Trump has also supported increasing hydrocarbon production to support jobs growth, which could delay the rebalancing of the oil price," she said. Some analysts consider that the impact on the region may be less severe than on other emerging markets since the Gulf economic bloc does not have direct trade pacts with the United States.
"The Gulf region as a whole does not trade much with the US directly, and there are no binding trade ties, so even Trump's protectionist policies will have little impact in terms of trade," said Mohamed Shabbir, a Dubai-based independent investment advisor.
The expectation that interest rates will remain anchored at current low levels may benefit those Gulf economies pegged to the dollar and for governments and corporates planning to issue bonds. "One upside could be that interest rates may be lower for longer, with the probability of a Fed rate hike in December now falling," added Malik. Nevertheless, protectionist trade rhetoric from Trump could lead to a drop in capital inflows as the Gulf's trade partners in Asia are likely to suffer from a decline in trade with the United States.
"One of the biggest worries, and the one that will impact the region most, is his opposition to the Trans-Pacific Partnership, this is likely to negatively impact emerging economies, which the Gulf largely trades with," Hussein al-Sayed, FXTM's chief market strategist for the Gulf and Middle East.
Other economists voiced similar concerns. "The prospect of protectionism and lower global growth will hit equity markets and risk assets world-wide. Emerging markets are particularly vulnerable given their dependence on global trade," said Keith Wade, chief economist and strategist at London-based Schroders. "We still don't know what his foreign policy will entail, another risk which investors will be pricing into the markets."
On Wednesday stock markets in the region initially plunged but closed well off their lows as investors absorbed the initial shock to focus on regional fundamentals. "Global markets, the Gulf and Egypt included, were pricing in a Clinton victory over the last couple of sessions, and instead they got Trump in the White House, but investors in the region then turned their focus on domestic factors especially in Saudi Arabia and Egypt," said Shabbir.
In Cairo, the index of the 30 most valuable shares extended gains for a fourth straight session and closed up 1.3 percent at 10,226 points, a fresh 8 year high. Trading volumes surpassed Tuesday's session. Global Telecom Holding gained 3.3 percent and investment firm EFG Hermes soared 6.3 percent. "The positive reaction following the currency float and with the IMF $12 billion loan inching closer investors shrugged off the global negative sentiment," said Shabbir.
It is now up 20 percent since the Egyptian pound was floated on Thursday. The broader index outperformed the bluechip benchmark for a second day, gaining 3.2 percent. Riyadh's index, which is usually traded by local investors, closed up 0.8 percent to 6,380 points, after it fell as much as 3 percent in morning trade. Domestic-focused shares were the top gainers, with mobile operator Zain KSA jumping 5.9 percent.
But Dubai's index, which is more vulnerable to foreign fund flows, lost 0.8 percent to 3,279 points, although it closed 64 points above its session low. Emaar Properties lost 0.3 percent, but its unit Emaar Malls Group rose 0.8 percent. Qatar's main index, another Gulf market sensitive to foreign fund flow, closed down 0.1 percent as a little over half of the listed shares declined. Vodafone Qatar lost 1.6 percent, but commodities producer Industries Qatar recovered to add 1.8 percent.
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