In step with the steep decline in oil prices, the key indicators for the Gulf’s stock markets have been witnessing precipitous drops, taking them to levels not seen in the last five years,

Are these declines justified theoretically? Or are there factors other than oil prices that led to the drop and any subsequent rise. Analysing such sudden and rapid changed suggests that it has nothing to do with the weak oil prices, but quite indicative of the fact that speculators have taken advantage of the developments to achieve quick profits by setting off a state of unreal panic among small investors.

The relation between decline in oil prices and GCC stock markets is untrue for several reasons. First, oil prices will not readily impact upon the Gulf’s economies, and the 2014 GCC budgets will still achieve surpluses thanks to the high pricing in the first nine months of the year. Also, broader economic conditions will not be affected even in the new year because of the substantial surpluses accumulated over the past five years. This will ensure medium-term stability for the economies.

In this regard, Moody’s credit rating agency forecasts the GCC banking sector continuing its strong performance into next year, amid expectations that the generous government spending in will continue despite the low oil prices. The GCC economies will be right in doing so. This is evident from the growing profits of GCC banks and in getting rid of bad debts.

Second, GCC economies are still in the secure zone even at the current oil price of around $70 a barrel, as they have set $65 per barrel as the indicative price in their 2015 budgets. (This has been the case was for some years now.)

This means that the decline will basically impact on surpluses and not on overall growth, including the prospects of companies listed on the capital markets.

A third reason is that most of the listed companies are not connected to the oil industry. In fact, some such as airlines and transport companies will benefit from low oil prices and achieve profits well above what they had in recent years. This is actually a good thing for listed companies, and strengthens the argument that the recent drops were set off by speculation alone.

Speculators may be aware of these facts, but making use of information and rapid developments in the oil and financial markets is considered a suitable opportunity for them to make imaginary profits. This is true of how the big investors behave in other global markets as well.

However, this requires a deeper understanding by retail investors to avoid being dragged into a “herd panic”, which may cause unexpected losses due to hasty investment decisions. What they should have done is try and have a correct understanding of developments and available information as well as seek advice from competent constancies.

In addition, local bourses were also affected by the expiry of Emaar’s grace period for distribution of cash dividends, and hence its shares fell sharply. Though the weight of Emaar on the general index is influential, it should not be taken as a benchmark assessment of the performance of the wider market sentiments.

When the size of Emaar’s dividends is equivalent to its share price, the performance of Emaar and that of the market will rise again, especially as companies are about to announce their financials for the year, which are expected to exceed expectations and particularly those related to banks. These developments indicate that falling oil prices were used by speculators as a tool to create panic among small investors for the sole purpose of booking profits for themselves and set up new positions on the capital markets.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.