January 26, 2016 / 6:02 AM / 2 years ago

MIDEAST STOCKS-Gulf markets may sell-off as oil falls below $30

DUBAI, Jan 26 (Reuters) - Stock markets in the Middle East may face sell-offs on Tuesday, as oil prices turned south and Asian bourses declined.

Brent broke below $30 a barrel in Asian trade, as fresh worries about oversupply from top producers Saudi Arabia and Iraq spooked the market.

Asian shares snapped a two-session winning streak, as MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.9 percent. Japan’s Nikkei was 2.5 percent lower at 0545 GMT.

Oil prices continue to drive sentiment towards Gulf equity markets. Traders and managers believe that if Brent prices break below $30 -- the new psychological barrier most investors are eyeing -- then bourses will resume declines.

Low oil prices are forcing major Gulf states to cut back on spending and subsidies to manage widening government deficits, and this will have a trickle down impact into the real economy.

“A move towards fiscal consolidation, reduction in infrastructure investments and elimination of subsidies is likely to bear negatively on the non-oil economy as well,” said a note by Deutsche Bank.

Companies which are able to weather the chronic low oil prices, and take the pain from subsidy removal while maintaining their ability to grow and pay dividends, will be the ones that long term investors are waiting to buy into.

For now, traders will be on the sidelines until markets stabilise.

“Traders who want to create fresh long positions may look to wait for a clear breakout over the critical barriers,” said Shiv Prakash, senior research analyst at Abu Dhabi’s NBAD Securities.

The barrier for Dubai’s bourse is 2,800 points and for Saudi Arabia’s index it is seen at 5,910 points, according to Prakash. The exchanges closed Monday respectively at 2,704 points and 5,610 points.

“Abu Dhabi’s resistance is at 3,920 and the trend shall remain bearish if this resistance holds strong,” Prakash added. The Abu Dhabi benchmark closed at 3,815 points on Monday.

Reporting by Celine Aswad; Editing by David French

Our Standards:The Thomson Reuters Trust Principles.
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