DUBAI: Stock markets in the Gulf look set to rise on Sunday, shrugging off Moody’s decision to cut its outlook for the debt ratings of several Gulf states, after oil prices rallied further on Friday.
Saudi Arabia’s Aa3 rating was placed on review for a possible downgrade, Moody’s said late on Friday; the United Arab Emirates, Kuwait and Qatar were also put on review, while Bahrain’s rating was cut to junk.
But investors may view this as a belated reaction to old news; more important is that Brent crude jumped 4 percent on Friday to near $39 a barrel. This is likely to strengthen sentiment that oil prices have finally bottomed and that Gulf economies will not face further negative surprises.
“This is not really new news,” a Jeddah-based analyst said of the Moody’s ratings. “I believe the bottoming of oil prices will outweigh the negative impact of the cut in outlook to negative.”
Last week bourses in the Gulf were lifted by higher volumes in small and mid-sized stocks that are largely favoured by local traders. Riyadh’s and Dubai’s indexes each rose 4 percent last week, although in Dubai most turnover was concentrated in volatile builder Arabtec, which soared 42 percent last week in speculative trade.
Short-term technicals have also turned positive for Gulf markets, with Saudi Arabia triggering a bullish right triangle by breaking its January peak last week, and Dubai confirming a reverse head & shoulders pattern.
Although Egypt’s index rose for the first time in four days on Thursday, most stocks were sluggish as investors remain hesitant to buy the market because of a possible interest rate hike, after bond yields rose, and a weakening currency in the black market, which has increased speculation about a possible devaluation.