S&P downgrade of Saudi debt may dampen markets
Saudi Stock Market - Getty Images

CAIRO: The decision of Standard & Poor’s at the weekend to downgrade Saudi Arabia’s sovereign debt while keeping a negative outlook on it may dampen Gulf stock markets on Sunday, preventing any substantial rallies.

S&P downgraded Saudi Arabia by only one notch and the other two major rating agencies, Moody’s and Fitch, have higher ratings for the kingdom. The government and Saudi companies have minimal foreign debt, so the downgrade will not have any direct financial impact.

Nevertheless, S&P’s action may feed into investor concern about the long-term direction of Saudi finances in an era of cheap oil, and about the fiscal tightening that Riyadh may have to conduct to get its budget deficit under control.

The prospect of a slowdown in Saudi Arabia has in turn been worrying investors in Middle Eastern markets as far afield as Egypt, because of the flows of Saudi money around the region.

The Saudi stock index, which closed on Thursday at 7,125 points, has technical support at its August low of 6,921 points.

Dubai’s index, last at 3,504 points, is also near technical support in the 3,500-point area, which has served as a floor since September.

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