Saudi stocks slid below a key barrier on Sunday, hurt by the latest drop in oil prices and concerns over valuations of blue-chip companies, while property and banking shares slipped in Dubai and Abu Dhabi after big gains last week.
The Saudi index dropped 0.8 percent to 7,972 points, below the psychological barrer of 8,000 points. Oil refiner Petro Rabigh fell 1.1 percent and property company Dar Al Arkan slid by 3.3 percent. "It appears the market is reacting negatively to the decline in international oil prices," said Muhammad Faisal Potrik, head of research at Riyad Capital.
He said that volumes and turnover are likely to remain low and could drop further during the remaining days of the Muslim fasting month of Ramazan. Oil prices fell more than $2 a barrel on Friday as Saudi Arabia and Russia discussed easing production cuts that have helped to push crude prices to their highest since 2014.
The weakness in Saudi stocks come as concerns grew among analysts about valuations of top companies after a strong run on foreign fund flows this year, buoyed by hopes that index compiler MSCI will upgrade Riyadh to emerging market status in June. The Saudi market is up nearly 11 percent this year, the best performer in the Gulf region.
The Saudi market is trading at an aggregate price-to-earnings multiple of 18.5 times against a 10-year median of 16.6, Al Mal Capital, a Dubai-based financial advisory and investment management firm, said in a research report. "From this perspective, the Saudi equity market can hardly be seen as a bargain, especially when considering the low visibility on earnings growth," the report said.
But Riyad's Potrik said there could be some bullish trend in the run-up to MSCI announcement, which would takes place immediately after holidays for the Eid festival in mid-June. The Dubai index dropped 0.8 percent, with shares in Emaar Properties down nearly 1.4 percent at 5.1 dirhams ($1.40).
The stock had risen to an intraday high of 5.42 dirhams on May 21 after a decision by the United Arab Emirates to grant residency visas of up to 10 years to investors and specialists. But it has since lost most of those gains amid investor cautioun over the outlook for Dubai's property market.
The Abu Dhabi index was hit by a reversal in First Abu Dhabi Bank shares, halting a short rally in banking stocks that had been fueled by Emirates NBD's deal to buy Turkey's Denizbank from state-owned Russian lender Sberbank. First Abu Dhabi Bank was down 2.8 percent and Emirates NBD fell by 1.4 percent.
Abu Dhabi National Energy Co registered a 4.7 percent decline.
Qatar's index dropped 0.6 percent as investors booked profit in Qatar National Bank, which fell by 1.5 percent.
QNB is up 25 percent this year, helped by strong earnings and its move to increase its foeign ownership ceiling to 49 percent from 25 percent to boost its weighting on global indexes.
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