Regional markets record worst day in three weeks

Escalating tensions between Saudi Arabia and Iran provoked a sharp sell-off of equities across the Arabian Gulf on Monday.

Stock markets in the UAE, Saudi Arabia and Qatar posted their worst daily performance in more than three weeks on Monday after the kingdom’s decision to sever diplomatic ties with Iran on Sunday evening.

Ironically, a rise in oil prices – so long the catalyst for stock market moves – triggered by the same regional tensions failed to spur any gains. Brent crude futures increased about 2 per cent to $38.03 a barrel.

The Qatar Exchange bore the brunt of the sell-off across the region, closing down 2.6 per cent. Saudi’s Tadawul All Shares Index ended down 2.3 per cent.

Shares in Dubai closed down 1.6 per cent at 3,084.43, while Abu Dhabi’s headline index ended 1.3 per cent lower at 4,215.58.

“The tension started ramping with last week’s executions [in Saudi Arabia], and with Sunday’s events it’s not looking any better this week,” said Sanyalak Manibandhu, a research manager at NBAD Securities in Abu Dhabi.

“We can only hope that the rhetoric cools before things get even worse.”

However, after markets closed on Monday, Bahrain announced it was cutting off ties with Iran, while the UAE said it would downgrade its diplomatic relations with the country.

Oman’s MSM 30 was the only index across the region to end the day in positive territory, closing up 0.2 per cent.

Global markets also fell sharply after disappointing Chinese manufacturing data on their first day of trading of the new year.

Trading on China’s stock exchanges was halted early, after a 7 per cent decline on the country’s CSI 300 Index triggered an automatic suspension mechanism put in place by the country’s stock regulator last month.

The share sell-off came after purchasing managers’ index data for last month came in below expectations, implying a fifth consecutive month of declining manufacturing activity.

“There was some hope that this month’s data would show some signs of macroeconomic stability for China, but it’s obviously not happening yet,” said Mr Manibandhu.

The disappointing data, coupled with the suspension of share trading, hit regional and global markets hard. Japan’s Nikkei closed 3 per cent lower, while mining stocks dragged the UK’s FTSE 100 2 per cent lower.

The S&P 500 opened 1.8 per cent lower in the United States.

In Dubai, shares in Emaar Properties shares fell sharply for the second consecutive day, following the fire at the developer’s The Address Downtown Dubai hotel on New Year’s Eve.

Shares in Arabtec Holding fell by 3.9 per cent to Dh1.23.

FGB and Aldar Properties acted as the main drags on shares in Abu Dhabi, falling 3 per cent and 1.6 per cent, respectively.

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