Brexit: Gulf investors concerned over market moves

MARKET WATCH: The six GCC states have large interests in the British real estate market.
Updated 27 June 2016
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Brexit: Gulf investors concerned over market moves

JEDDAH: Stock markets in Gulf states including Saudi Arabia dropped Sunday in the first trading session after Britain voted to leave the European Union.
As GCC markets reacted negatively to the so-called Brexit, regional analysts, quoted by local media, said that the Brexit result could provide a golden opportunity for the Gulf investors to seek positive returns from the British market, especially in light of the sharp decline in the value of the British pound.
These analysts expect the gains for Gulf investors from the Brexit to be greater than the losses — especially real estate.
Analysts, however, suggested that Gulf investors should wait a little longer until the picture becomes more clear about the ramifications of Friday’s landmark verdict.
Ihsan Bu-Hulaiga, an economist, commented that Brexit came at an inappropriate time for Gulf countries, who are suffering from a decline in oil revenues and are searching for alternatives.
On Sunday, Saudi stocks fell 4.1 percent at the opening but recovered to close down just 1.1 percent. All 15 sectors were in negative territory.
“Investors are very concerned now over what will happen next,” Basil Al-Ghalayini, CEO of BMG Financial Group, told Arab News.
“This uncertainty will drive prices down. Unfortunately, we will go through this turbulent phase for a while until a new prime minister is found to replace David Cameron,” he told Arab News.
James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, commented: "The main risk to Saudi Arabia is oil prices. The European Central Bank is likely to keep interest rates lower for longer. This will likely mean a stronger US dollar, which is negative for commodities including oil.”
The Tadawul All-Share Index closed at 6,479 points but bounced from an intra-day low of 6,257 points. Petrochemical blue chip Saudi Basic Industries Corp. fell 1.5 percent and National Commercial Bank was down 1.3 percent.
But Arabian Pipes, which soared last week after winning a contract from Saudi Aramco, jumped its 10 percent daily limit for a fourth straight day. Saudi Electricity Co., seen as a defensive stock, rose 1.6 percent.
On the Saudi exchange, 356 million shares were exchanged, 67 percent more than the 20-day average.
Out of the Tadawul’s 172 index members, 149 fell.
John Sfakianakis, director of economics research at the Gulf Research Center, commented: “There is limited impact between Saudi Arabia and the UK financial system and any impact will depend on secondary effects at a global level.”

He added: “There is a certain degree of risk-aversion over the short term. Over the medium term, investor confidence would be impacted by oil prices and the direction and confidence of global economic growth.”
Sfakianakis said: “Emerging market debt could see an uptick as liquidity takes priority over the short term. Fundamentals will drive economic growth over time. There is limited impact between Saudi Arabia and the UK financial system and any impact will depend on secondary effects at a global level.”
Speaking to Arab News, a regional analyst said: “The main challenge for now is the uncertainty (as always!!). Everyone knows that this will have implications but it is too early to tell how, how soon, and in what ways. Markets always overreact to uncertainty.”
He added: “I agree that the exposure of Saudi listed companies to the UK is probably likely to be fairly limited. However, many will have relationships with UK-based banks and affected by the volatility of the pound as well as many questions marks about the future of banking regulation in the country.” 
The analyst said: “For Saudi investors, a weaker pound represents a short-term opportunity, albeit into a market that now looks far less clear and predictable. For Saudi exporters, a weaker pound means a tougher market, whereas the competitiveness of UK products will increase.”
He added: “Strategically speaking, companies that had used  the UK as a global hub or a springboard for the UK market, the future suddenly looks far murkier.”
The analyst also said: “While the real economic impact on Saudi Arabia will likely be modest, the uncertainty in the UK, and its global implications will now potentially rumble on for a fairly long time.”
All seven GCC stock markets were closed on Friday when the result of the British referendum was announced.
The Dubai Financial Market began the day by sliding 5.0 percent, but the index — the Gulf bourse most exposed to international markets — finished the day down 3.25 percent.
At one stage, investment companies fell 8.0 percent and real estate dropped 5.0 percent.
The Qatar Exchange fell 1.25 percent, the Abu Dhabi Securities Exchange dropped 1.85 percent and the Kuwait Stock Exchange closed 1.1 percent lower.
The bourses of Oman and Bahrain ended the day down 0.6 percent and 0.7 percent respectively.
The six GCC states have large interests in the British real estate market and thousands of Gulf citizens own homes in Britain.
Britain also has sizable real estate interests in Dubai and more than a million British tourists visit the UAE annually.


Stronger US dollar unlikely to derail bullish view on commodities — Goldman Sachs

Updated 21 September 2018
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Stronger US dollar unlikely to derail bullish view on commodities — Goldman Sachs

  • The dollar has been lifted by a stronger-than-expected US economy, the world’s largest
  • A stronger greenback makes the purchase of dollar-denominated international commodities more expensive for holders of other currencies

BENGALURU: Goldman Sachs said a stronger dollar is unlikely to derail its bullish view on commodities, which are likely to find support from physical shortages.
The dollar has been lifted by a stronger-than-expected US economy, the world’s largest, and that’s a positive sign for global growth, the US investment bank said.
The US dollar index has lost more than 1 percent this week, but this follows months of strong demand over US-China trade-related tensions, as investors bet the greenback would gain at the expense of riskier currencies.
“The risk aversion this summer created significant emerging market destocking, particularly in China, as consumers attempted to avoid a strong dollar and tariffs by liquidating inventories,” Goldman said in a note dated on Thursday.
A stronger greenback makes the purchase of dollar-denominated international commodities more expensive for holders of other currencies, making buyers and users more likely to draw on any stored materials in preference to imports.
“This liquidation, however, has a physical limit with Chinese destocking having already created significant increases in physical (premiums) for oil and metals – a sign of physical shortages.”
Going forward, oil had a strong fundamental outlook helped by US demand growth, supply losses and disruptions, and still constrained US shale output, Goldman said.
The bank said its near-term Brent crude oil price target remained at $80 a barrel.
The bank said it was moderating its bullish view for gold due to a sell-off in emerging markets, and it lowered its 12-month price forecast for the metal to $1,325 per ounce, down from $1,450 an ounce earlier.