This page has been archived and commenting is disabled.

Mid-East Meltdown Continues: Stocks Sell-Off Across Petrodollar States

Tyler Durden's picture




 

On Sunday, we saw a Gulf market meltdown with stocks falling 7% in Saudi Arabia and 5% or more in the United Arab Emirates and Qatar. The steep declines came on the heels of Friday’s horrific selloff in US markets and presaged the carnage that would begin to unfold hours later when Asian bourses opened for trading for the week. 

As Brent continued to slide, the selloff in Mid-East markets continued unabated on Monday with Saudi Arabia’s Tadawul All Share Index dipping more than 6%, hitting levels last seen in May of 2013. 

Brent:

Saudi Arabia:

UAE:

Qatar:

"Oil just can’t stop sliding and local investors are very worried about where the bottom is and how long regional economies can take the battering," one asset manager in Abu Dhabi told Bloomberg, who reminds us that “Middle Eastern stocks had their worst day of the year on Sunday after Saudi Arabia’s index of equities sank more than 20 percent from a peak in April.”

And more

In Dubai, stocks declined 1.4 percent to 3,401.62 after plunging as much as 6.1 percent.

The gauge could fall below 3,000, "and if that happens, it will be a severe jolt," Nabil Rantisi, the managing director of brokerage at Mena Corp. Financial Services, which has a client deposit base of 6.8 billion dirhams ($1.85 billion), said by phone from Dubai. “It’s a scary scenario.”

 


Yes, scary indeed. And as WSJ alluded to on Sunday when, just hours after we reminded the world that this latest bout of carnage across global markets all started with the demise of the petrodollar, it noted that "petrodollar-dependent Persian Gulf [states] depend on energy exports to finance their expansionary spending plans at home, the weak outlook for oil further aggravated a recent sell-down of risk in the region."

Put simply, if oil prices stay low - and they likely will, as revenue maximization for the Saudis still looks to be outweighed by the desire to wrench every last bit of market share away from US shale drillers by bankrupting the entire space - the region’s fiscal situation will only deteriorate, triggering further pressure on petrodollar reserves, making the pegs in Saudi Arabia and the UAE increasingly unsustainable, and ultimately forcing the Saudis into the debt market to mitigate the FX reserve drawdown. 

All of this will have an adverse impact on credit worthiness (see Fitch’s move to cut its outlook for the kingdom) which could trigger further flows out of the country and so on and so forth in a very non-virtuous circle, just months after Saudi Arabia’s historic move to open its stock market to foreign investment. 

And as the pressure mounts on asset prices so too will the pressure mount for fiscal retrenchment and you can believe that reining in the quality of living in these states will come at a tremendous social and political cost.

Perhaps Al Masah Capital said it best: "regional buyers need a lot of conviction to step in front of this speeding train [especially] in context of a rapidly changing economic environment."

Summed up in one picture: "Arab Traders With Hands On Their Faces"

*  *  * 

Bonus: Color from Bloomberg on the Saudis and crude

  • Current situation reminiscent to step-change in Saudi policy in 1985 when it abandoned fixed selling prices, swing producer role, boosting output to 6.2m b/d by Aug. 1986 from 2.17m a year earlier
    • OPEC Basket consequently fell to <$10/bbl from ~$27, briefly spiked to almost $40 after Iraq’s 1990 invasion of Kuwait before drifting around $20 for next 10 yrs
  • Saudi no longer ruled by succession of octogenarian kings; new, younger leaders are seeking to secure oil-mkt share for decades to come: Lee
    • They recognize that cutting output to bolster prices will boost non-OPEC production, reducing OPEC mkt share
    • Primary concern of royal family is long-term well-being of citizens, not short-term comfort of other OPEC countries
    • Kingdom probably feels less responsible for other OPEC members after they failed to support its call for quota increase in 2011
  • Saudi Arabia eventually relented; in 1998 coordinated unprecedented global output cut involving OPEC, non-OPEC nations via accords in Riyadh, Amsterdam and The Hague
  • While current mkt environment is starting to feel more like 1998, no sign emerging of OPEC/non-OPEC coalition to manage mkt this time around
  • Some OPEC members are calling for emergency meeting yet are unwilling to reduce their own production, reducing effectiveness of their pressure on Saudi
  • W/out cuts, lower prices will probably remain until non-OPEC output growth falters through canceling of big, long-term projects that could take yrs, not months
  • Dec. 4 OPEC meeting will give clearer picture of pressures on Saudi, its ability to withstand them

 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 08/24/2015 - 07:55 | 6461376 clooney_art
clooney_art's picture

Is that the DOW and NASDAQ of Saudi Arabia. I see one investor too ?

Mon, 08/24/2015 - 08:04 | 6461426 Sisyphus
Sisyphus's picture

Actually, they are not trading. They are checking if their names are listed in the AM data dump.

The one on the left--his worst fears have come true.
The one on the right is just praying that his name does not show up.

Mon, 08/24/2015 - 09:10 | 6461926 giovanni_f
giovanni_f's picture

The left one: "Shit.The Russians..."

The right one: "I told you... was a mistake...you don't mess with them... Lavrov warned us."

Mon, 08/24/2015 - 07:58 | 6461377 Cognitive Dissonance
Cognitive Dissonance's picture

Global crash bitches. I love the smell of abject fear in the morning.

<Wasn't it just a few weeks ago when global risk was considered a reason to buy buy buy? My, but how quickly the herd turns.>

Mon, 08/24/2015 - 07:57 | 6461390 Callz d Ballz
Callz d Ballz's picture

Saudi's version of banana stand.

Mon, 08/24/2015 - 08:01 | 6461393 Supernova Born
Supernova Born's picture

Looks like the "get Russia" blunderbuss blasted the world economy square in the face.

Oops.

Mon, 08/24/2015 - 07:59 | 6461408 Flounder
Flounder's picture

Tyler your coverage of all this on Twitter and your web page has given us the best seat in the house.  Thank you for the effort.

Mon, 08/24/2015 - 08:02 | 6461417 falak pema
falak pema's picture

dubai RE will slide and all those HFs based in Dubai who leverage everything based on OIL being king commodity?

This begs the question : Will Saud turn his tap down and sacrifice MS for price?

Mon, 08/24/2015 - 08:11 | 6461440 ZZR600
ZZR600's picture

In the meantime the Saudi's little jaunt into Yemen is turning ino their version of USA's jaunt into Iraq and Afghanistan. Quite a few videos here of Saudi tank columns and border posts being obliterated . Not sure sure the markets are discounting this

These just from the last 2 days

Video 1

Video 2

Video 3

Video 4

Mon, 08/24/2015 - 08:10 | 6461460 SSRI Junkie
SSRI Junkie's picture

remain calm, all is well

 

https://www.youtube.com/watch?v=zDAmPIq29ro

Mon, 08/24/2015 - 08:14 | 6461492 negative rates
negative rates's picture

Like a well is just another hole in the ground, that calm?

Mon, 08/24/2015 - 08:27 | 6461588 nosam
nosam's picture

India's SENSEX crashes 6%

Mon, 08/24/2015 - 08:35 | 6461641 ThroxxOfVron
ThroxxOfVron's picture

FUCK THEM.

THEY SCREWED US FOR $120 A BARREL AND MORE DURING A GODDAMNED DEPRESSION.

LOOK AT THE LONG TERM CHART: ABSOLUTELY NO PRECEDENT FOR SUCH EGGREGIOUS GOUGING.

FUCK THEM.

Mon, 08/24/2015 - 08:42 | 6461697 detached.amusement
detached.amusement's picture

  blowing up a huge bubble and then purposefully popping it   is only good for those who blow the bubble

 

   interestingly, those its good for are also those that need to have lamppost meetings

Mon, 08/24/2015 - 08:58 | 6461824 who cares
who cares's picture

they are getting retribution. Let them go to Hell!

Mon, 08/24/2015 - 09:07 | 6461895 spoonful
spoonful's picture

Fuck them - the plunge in oil prices is a transfer of wealth from these entitled Wahabis and the other elites to those at the other end of the spectrum who pay such a high percentage of their incomes on oil and gas.

Mon, 08/24/2015 - 09:48 | 6462374 IndianaJohn
IndianaJohn's picture

Men wearing fairy pajamas look even more bizzare than Wallmartians.

Do NOT follow this link or you will be banned from the site!