GCC markets in red as Saudi Arabia warns of ‘painful’ times ahead

Dubai: Gulf stock markets were trading deep in the red on Sunday, with the region’s largest bourse – Saudi Arabia’s Tadawul – leading declines, after the kingdom warned of a much harsher COVID-19 hit to its economy.

Dubai Financial Market (DFM) index dropped 3.96 per cent to 1,946 points, while Abu Dhabi Securities Exchange (ADX) fell 2.95 per cent to 4,105 points, with losses exasperating minutes after Tadawul plunged over 7 per cent.

Saudi Arabia will need to take “painful” measures and look for deep spending cuts as the kingdom faces a double crisis caused by the coronavirus pandemic and the meltdown in global oil markets, its finance minister said on Saturday.

Investors elsewhere in the GCC were worried that more countries in the region will follow suit in implementing stringent measures against the growing virus outbreak in the days and months ahead.

Crisis like never before

“The kingdom hasn’t witnessed a crisis of this severity over the past decades,” Mohammed Al-Jadaan said in an interview with Saudi television station Al-Arabiya. “It’s very important that we take very tough and strong measures, and they might be painful, but they’re necessary.”

Investors were particularly jolted as the stance taken by the kingdom was a sharp reversal from just over a week ago. The finance minister's remarks then were reassuring, when he reiterated the kingdom had been through similar crises before, “maybe even worse,” and would pass through this one as it had others.

In contrast, on Saturday, Al-Jadaan said that government spending would need to be “cut deeply”, while adding that the list of budget items that will be affected is “very long”.

Some programs under the kingdom’s “Vision 2030” -- Prince Mohammed bin Salman’s economic diversification plan -- will also face spending cuts as their implementation is delayed by measures taken to slow the spread of the virus, Al-Jadaan warned.

Rating downgrades

Worsening sentiment in the region were more downward rating revisions. International ratings agency Moody's Investors Service on Thursday revised Saudi Arabia's outlook to negative on Saturday.

The world’s largest oil exporter is bracing for a bigger hit from the oil price rout and production cuts negotiated by OPEC and its allies. The price of Brent crude crashed by more than 50 per cent in March, contributing to a record $27 billion monthly drop in the Saudi central bank’s net foreign assets.

The Saudi benchmark plunged as much as 7 per cent in early Sunday trading, while Boursa Kuwait dropped 1.5 per cent and the Qatar Stock Exchange slipped nearly a per cent. The indices in Bahrain and Muscat were trading relatively flat on Sunday.

UAE property worries worsen

The ratings agency also changed the outlook for Dubai’s largest listed developer Emaar Properties and its unit Emaar Malls Group to negative from stable, citing the impact of the coronavirus pandemic. Last month, S&P Global Ratings placed Emaar Properties and Emaar Malls on creditwatch with negative implications.

The Dubai real estate sector has for years struggled with oversupply and sluggish economic growth. On the DFM, Emaar Properties slumped 4.7 per cent in early trade, with its spin-offs Emaar Development and Emaar Malls recording similar sized losses as well.

Also among top decliners were Dubai Islamic Bank which dropped over 4 per cent. On the Abu Dhabi bourse, lenders and real estate firms followed suit, with ADIB dropping 4.4 per cent and Aldar Properties down 4.9 per cent. Lender ADCB fell 2.2 per cent.

Markets were also weighed by renewed wider geopolitical concerns, particularly as the trade relations between the US and China were back in the spot light, worsening after President Donald Trump threatened new tariffs on China.