Gulf shares fall after US rate hike, but banks buoy Tadawul

Arabian Gulf countries raised their rates in lockstep with the Federal Reserve, sending stocks lower, but a change in Saudi Arabia's reverse repo rate could lead to moderate income growth at the country's banks.

As expected, the central banks of Saudi Arabia, Kuwait, Bahrain, the UAE and Qatar followed with their own 25 basis point rate hikes, while Oman, which has been raising its repo rate gradually in recent months, is expected to continue doing so.

But since market interest rates in the Arabian Gulf have recently been influenced more by oil prices and their impact on banking system liquidity than by official policy rates, the latest increases may not have much negative impact on economies.

In Dubai, where it is more vulnerable to foreign fund flows than its regional peers, the main index pulled back 0.5 per cent. The heavyweight Emaar Properties and its retail affiliate Emaar Malls Group were each down 1.1 per cent.

Dubai depends heavily on tourism, and a stronger US dollar, which is linked to the UAE dirham using a peg, could slow that sector.

Qatar’s main index was down 0.6 per cent, pulling further away from a two-month high hit earlier this week. Telecommunications shares listed on the MSCI Emerging Market Index were down, with Ooredoo declining 1.1 per cent.

In Saudi Arabia, however, bank shares gained, leading the main market index 0.5 per cent higher after 50 minutes of trade. All of the 12 listed lenders on the Tadawul climbed, with the heavyweight Al Rajhi Bank adding 2.0 per cent.

The 25 basis point rise in Saudi Arabia’s reverse repo rate, used when banks deposit funds with the central bank, could boost their income modestly. At the same time, the central bank kept its repo rate, used to lend money to banks, flat in a sign it does not want liquidity to tighten further.

* Reuters

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