June 5, 2017 / 5:22 AM / 2 months ago

MIDEAST STOCKS-Qatar, GCC markets set to drop as ties severed

3 Min Read

DUBAI, June 5 (Reuters) - Stock markets in Qatar and the rest of the six-nation Gulf Cooperation Council look set to drop on Monday after Saudi Arabia, Egypt, the United Arab Emirates and Bahrain severed ties with Doha, accusing it of supporting terrorism.

Saudi Arabia said it had severed all land, sea and air contacts with Qatar. Abu Dhabi's Etihad Airways said it would suspend flights from Tuesday. Saudi Arabia, the UAE and Bahrain gave Qatari visitors and residents two weeks to leave their borders.

With an estimated $335 billion of assets in its sovereign wealth fund, a trade surplus of $2.7 billion in April alone and extensive port facilities, Qatar appears likely to be able to ride out the impact without any economic crisis.

The GCC states do little merchandise trade with each other, instead relying on imports from outside the region, and Qatar's liquefied natural gas shipments by sea are expected to continue normally. GCC investments in Qatar's stock market are believed to be minor.

Nevertheless, the diplomatic rift - the worst in years - is expected to have a considerable impact on investor sentiment, outside Qatar as well as within the country.

"All GCC markets will fall today - this is unprecedented and we are entering unknown territory. This is not good news for the markets," said a Dubai-based portfolio manager.

"The markets have been quiet in search of a catalyst, and this is it...There will be a lot of exiting today."

After Saudi Arabia, the UAE and Bahrain withdrew their ambassadors from Qatar in March 2014, the Qatari stock market immediately tumbled 2.3 percent and remained weak for about three weeks, before rebounding strongly as Qatar entered MSCI's emerging market index.

Some fund managers said Qatari banks could be hardest hit.

"Qatari banks that are exposed to those countries that have severed ties with it will be very vulnerable, and vice versa - companies that have borrowed from Qatari banks may have to figure out how to negotiate loans and deals," said a Doha-based asset manager.

Also, some Qatari banks have been borrowing from overseas to offset tight liquidity in the domestic money market; they may now find it more expensive to borrow. (Editing by Andrew Torchia)

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