The Saudi market was the region’s top performer this year ahead of its opening to foreign investors in June, but it is now down more than 8% in 2015 so far.
Not surprisingly, retail investors that still dominate most regional markets further cut their equity exposure, also in part because of margin calls as benchmarks fell below key support levels. Margin financing, or money borrowed for stock purchases, is often used by small investors in the region because of the relatively easy access to credit here.
“The multiple fears of China slowing down, a currency war, reduced oil-related income for regional governments to spend and a growing U.S. economy not being strong enough to withstand these new threats does not make for a pretty picture,” Al Masah Capital said.
“Regional buyers need a lot of conviction to step in front of this speeding train; however, valuations are becoming attractive, especially in Saudi and U.A.E., but these now need to be taken in context of a rapidly changing economic environment,” Al Masah added.
Several analysts agreed that the selling might be overdone, especially in some Gulf markets, but largely remain cautious.
“Investors are being indiscriminate: The U.A.E. is better placed for the fall in oil prices, since it has made reforms [cutting energy subsidies] and has a relatively well-diversified economy,” EFG’s Mr. Kitchen said. “[Regional] governments need to make serious reforms, particularly to taxation and subsidies, to put growth on a surer footing– progress on this would help markets,” he added.
