Mideast stocks drop amid ris­ing US-Iran ten­sions

Muscat Daily - - BUSINESS -

Dubai, UAE - The US killing of Iran’s most se­nior mil­i­tary com­man­der re­ver­ber­ated through Mid­dle Eastern mar­kets, send­ing stocks into re­treat and set­ting the tone for what’s likely to be a volatile week.

All the re­gion’s ma­jor eq­uity gauges fell on Sun­day. Kuwait’s dropped more than 4 per cent, trim­ming a rally that made it the best mar­ket in the re­gion last year. Aramco shares slumped as the coun­try’s Tadawul All Share In­dex lost as much 2.1 per cent, with lo­cal banks con­tribut­ing the most to its de­cline. Bench­mark stock in­dexes in the UAE, Qatar, Bahrain, Is­rael, Egypt and Oman also weak­ened.

Geopo­lit­i­cal risks flared af­ter Ira­nian Gen­eral Qassem Soleimani was killed in Iraq last week in a drone at­tack or­dered by US Pres­i­dent Don­ald Trump. Iran’s Pres­i­dent Has­san Rouhani vowed re­venge, while Trump said late Satur­day the US had iden­ti­fied 52 Ira­nian sites that would be hit ‘very hard’ if Tehran re­tal­i­ated.

“In­vestors who were hop­ing for lower geopo­lit­i­cal ten­sion in the Mid­dle East and North Africa in 2020 got their hopes dashed on the sec­ond day of the year,” said Mo­hammed Ali Yasin, chief strat­egy of­fi­cer at Abu Dhabibased Al Dhabi Cap­i­tal Ltd. “2020 will con­tinue to be a year of high geopo­lit­i­cal ten­sions.”

Global mar­kets turned sour on Fri­day as Soleimani’s death trig­gered a flight to havens at the ex­pense of riskier as­sets. MSCI Inc’s in­dex of emerg­ing-mar­ket stocks fell the most in more than a month. Brent crude rose to US$68.60 a bar­rel, its high­est level since mid-Septem­ber, and gold, a haven for in­vestors in rocky mar­kets, al­most reached a six-year high.

The cost of in­sur­ing Saudi Ara­bia’s debt against de­fault spiked, jump­ing more than when mis­siles struck Aramco’s oil fa­cil­i­ties in Septem­ber, an at­tack Wash­ing­ton blamed on Tehran. At 65 ba­sis points, Saudi Ara­bia’s five-year credit de­fault swaps are now more ex­pen­sive than In­done­sia’s for the first time in al­most two years, even though Moody’s In­vestors Ser­vice rates the lat­ter four lev­els lower. Yields on the bonds of Saudi Ara­bia, Abu Dhabi, Le­banon and Iraq all climbed.

Aramco shares were fac­ing their big­gest test since the ini­tial pub­lic of­fer­ing less than a month ago. The stock dropped 1 per cent to SAR34.80 on Sun­day, headed for its low­est close since the De­cem­ber 11 list­ing.

Op­ti­mists will point to the re­silience of Mid­dle East mar­kets in the face of po­lit­i­cal ten­sion. Volatil­ity surged in Septem­ber af­ter the Aramco drone strikes high­lighted the vul­ner­a­bil­ity of Saudi oil in­stal­la­tions. Ye­men’s Houthi rebels claimed re­spon­si­bil­ity. That came just a few months af­ter a spate of at­tacks on oil tankers in or near the Strait of Hor­muz, for which the US and Saudi gov­ern­ments blamed Iran.

The ex­tent of the lat­est sell-off will de­pend on if, how and when Iran re­sponds to Soleimani’s killing, said Fahd Iqbal, Credit Suisse AG’s Dubai-based head of Mid­dle East Re­search.

“There will be a sense of ner­vous­ness and wait-and-see,” he said on Sun­day. “There is a lack of know­ing what Iran is go­ing to do, or how se­vere any kind of re­tal­i­a­tion will be, if there is any.”

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