Higher oil prices boost UAE bourses

A surging oil price is likely to give a further boost to already buoyant Gulf markets, while the recovery from crisis gathers pace overseas.

A sharp rise in the price of oil, which reached $125.47 per barrel last week, is expected to provide a spending boost for the oil-rich Gulf states. Jae Hong / AP Photo

A surging oil price is set to give soaring stock markets in the region further room to travel in the week ahead, as fresh signs of recovery emerge in the US.

Brent crude futures reached US$125.47 per barrel, at the end of a five-day streak of gains that brought the benchmark to its highest level since August 2008.

The sharp rise would provide a boost for the oil-rich Gulf states, many of which are expected to find easier access to funds for ambitious government spending plans, according to Capital Economics.

"The jump in oil prices over the past month has sharpened the divide between the relatively bright outlook for the Middle East's resource-rich countries, and the less rosy outlook for the resource-poor countries," analysts wrote in a research report.

"In the GCC, the rise in oil export revenues will bolster government receipts, ensuring that another round of fiscal stimulus over the course of this year is easy to fund."

The boost to oil-exporting countries comes alongside a rebound on local stock markets, as concerns eased over the effects of Dubai's debt crisis and many of the emirate's biggest companies reported better than expected results.

Stocks on the Dubai Financial Market General Index closed 1.4 per cent higher on Thursday. Dubai stocks entered a bull market beginning on January 16, when tensions surrounding Iran brought markets to a eight-year low.

Since then, the index has rallied 25.4 per cent to 1,632.27 as concerns faded surrounding upcoming debt maturities at some of the emirate's largest government-linked companies. Last month, Dubai Holding Commercial Operations Group said it had repaid a $500 million bond due later this year.

Abu Dhabi's stocks, in the meantime, have gained 10.7 per cent to 2,539.20 since bottoming out last month.

Volumes on both emirates' exchanges have rebounded during the first few months of this year as a slew of positive earnings releases and high dividend payouts sparked fresh trading among retail investors.

Since then, Dubai Government bond yields have fallen, while the emirate's credit default swaps - viewed as reflecting the likelihood of an issuer to default - have slid 46 basis points to 395.7 basis points.

Meanwhile, Saudi Arabia's markets continued their recent charge, having risen during all six of the previous trading sessions.

The Saudi Tadawul All-Share Index has gained 10.25 per cent since the start of the year, adding a further 0.63 per cent yesterday to close at 7,075.86.

Volumes on the kingdom's exchange have also increased steadily as speculation mounts that rules restricting international investment in Saudi stocks could be eased.

The value of stocks traded on the exchange crossed the $3 billion mark on Tuesday, the first time it has done so since the onset of the global financial crisis in 2008.

However, with the earnings season now concluded for the majority of the UAE's large cap companies, attention will turn to events overseas to set the pace of local trading.

Consumer confidence in the US increased this month as further signs emerged that a recovery in the world's largest economy was gathering speed.

The Thomson Reuters/University of Michigan index of consumer sentiment increased to 75.3 this month from 75 a month earlier.

However, despite the sunnier outlook for the US, recurrent debt fears emanating from Europe could still throw a spanner in the works.

Economic data from the continent showed a slowing of business confidence. The EU revised its growth estimates downwards last week, and now anticipates flat growth for this year in the 27-member trading bloc, with a shrinkage of 0.3 per cent for the euro zone. Previously, it had anticipated growth of 0.6 per cent for the EU and 0.5 per cent for the euro zone.

"Although business sentiment signalled a tentative stabilisation in the euro area at the turn of the year, the unexpected fall in the February preliminary estimate of the composite Purchasing Managers' Index acted as a reminder of the fragility of the economic outlook in the monetary union," analysts from Goldman Sachs wrote in a research report.

Mariano Rajoy, Spain's prime minister , said the euro zone's fourth-largest economy would discuss its deficit reduction target with the European Commission as it attempts to restart the country's growth, Bloomberg News reported on Thursday.

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