A nightmarish final quarter for Middle Eastern equities almost wiped out the sum of the year’s gains, though some countries performed well despite the rout.
As the oil price plummeted – the benchmark US crude price is now less than $60 a barrel – investors sold shares in oil-producing countries, causing the Pan Arab Composite LargeMid index by S&P to fall nearly 19% in the quarter.
Saudi Arabia, the world’s largest oil exporter, was stung with a 25% fall in the value of its broad market index from S&P in just three months.
However, the year ended in positive territory for most indices. The S&P Egypt broad market index was up 29% over the year despite being affected, less severely than Saudi Arabia, by the sell-off in the final quarter. S&P’s indices for Qatar, Turkey and the UAE all returned more than 10% over the year.
“The markets of the oil-producing countries have endured a horrible final quarter, and December provided little respite,” says Tim Edwards, senior director, index investment strategy, S&P Dow Jones Indices. “However, and largely due to meteoric rises over the summer months, the record books shall none-the-less recall 2014 as a positive year for Middle Eastern equities.”
Governments in the oil-producing countries are currently questioning whether to cut back on the pace of development, or prepare to dig into their savings to offset their lower oil revenues.
According to its budget for 2015, Saudi Arabia is planning to run a budget deficit this year and will pay for the overspend out of its considerable foreign exchange reserves (the Saudi Arabian Monetary Agency had $736 billion under management at the end of November).
Other Gulf countries such as Oman and Bahrain, which lack large cash reserves, may have to make cuts or resort to borrowing if oil prices stay low.
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