DUBAI, Dec 21 (Reuters) - A strong rebound by Gulf stock markets looks set to slow on Sunday as the outlook for oil prices remains cloudy, but the panic which engulfed stocks earlier this month is unlikely to return.
Gulf bourses surged on Thursday, with Saudi Arabia up 8.9 percent and Dubai up 13.0 percent, after Brent crude oil rebounded above $60 a barrel. It ended on Friday up $2.11, or 3.4 percent, at $61.38.
Although some oil traders are betting that $60 a barrel will be a floor, others are not convinced and think a renewed slide towards $50 remains a possibility. Uncertainty is so high that the CBOE crude oil volatility index last week hit its highest level since 2011.
Any renewed drop of oil this week could hit Gulf stock markets again, particularly Saudi petrochemical stocks.
However, the bourses appear to have found at least short-term bottoms, and Gulf investors are no longer so worried that lower oil prices will mean sharp cut-backs in government spending in the region. Governments of the big Gulf economies will be able to use their huge fiscal reserves to cover any budget deficits for years.
Saudi Arabian Finance Minister Ibrahim Alassaf said on Wednesday that his government would continue spending strongly on development projects and social benefits in its 2015 budget, which is expected to be announced on Monday. United Arab Emirates, Kuwaiti and Qatari ministers have made similar comments.
Fitch Ratings affirmed its AA debt rating for Kuwait at the weekend, citing “an exceptionally strong sovereign balance sheet”.
Qatar’s bourse may rise strongly on Sunday because the market was closed for a national holiday on Thursday, missing out on the Gulf’s rally.
FIFA’s executive committee unanimously agreed on Friday to publish an “appropriate” version of the investigation into the bidding process for the 2018 and 2022 World Cups but said Russia and Qatar would still stage the tournaments, which was good news for the Qatari market.
The two most vulnerable Gulf economies are Bahrain and Oman; Fitch cut Bahrain’s outlook to negative at the weekend, following a similar move by Standard and Poor‘s. However, liquidity appears so low and stocks are so tightly held in Bahrain that the Bahraini stock market has actually outperformed the region in recent weeks.
The executive president of Oman’s State General Reserve Fund, its largest sovereign wealth fund, told Reuters at the end of last week that the SGRF had boosted its buying of shares in the local market as prices had slid to attractive levels.
Egypt’s stock market, which also began rebounding on Thursday, may get a further boost from news that Fitch upgraded Egypt’s debt to B, citing encouraging government policies.
“The government has embarked on a policy course designed to tackle some of the serious structural weaknesses that have emerged or intensified in recent years,” it said.
“Fuel subsidy cuts and tax hikes have been implemented as part of a clear five-year fiscal consolidation strategy. Power shortages are being tackled, overdue payments to oil companies reduced, investment laws revised and disputes with foreign investors settled. The measures appear to have strong political backing.” (Reporting by Andrew Torchia)