PHOTO
DUBAI, June 26 (Reuters) - Middle East stock markets look set to fall sharply on Sunday in response to global market turmoil after Britain's decision to leave the European Union, but Gulf foreign exchange forwards and credit default swap prices suggest a panic may be avoided.
The Dow Jones industrial average
.DJI
plunged 3.4 percent and MSCI's all-country world stock index
.MIWD00000PUS
fell 4.8 percent on Friday; Middle East markets may drop by similar margins.
Beyond the global market unease, Brexit could hit Gulf economies and therefore markets in several ways. Slower growth in Europe may push down oil prices; Brent oil
LCOc1
sank 4.9 percent to $48.42 a barrel on Friday.
ID:nL1N19G2FK
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said that among the Gulf Cooperation Council economies, she expected the greatest impact of a weaker pound and euro to be felt in the United Arab Emirates, because of its large tourism and real estate sectors.
"We see a weaker private consumption and investment outlook in the UAE following Brexit," she said in a report.
She also noted that while Brexit was likely to deter any U.S. interest rate hike for the time being, it would probably require GCC economies to tighten fiscal policy further to limit the widening of their deficits and protect market sentiment.
"Moreover, with the fall in oil prices and elevated global market uncertainties, foreign borrowing rates for GCC entities will likely increase. This will place more pressure on domestic borrowing and potentially push up interbank rates further."
However, movements in Gulf forex forwards and sovereign debt insurance costs on Friday were minor, suggesting foreign investors were not for now using Brexit as a cue to speculate heavily against GCC assets.
One-year U.S. dollar/Saudi riyal forwards
SAR1Y=
, used to hedge against the risk of future currency depreciation, barely moved on Friday and stayed well within the range of the past few weeks. High-grade Gulf bond prices moved very little.
Five-year Saudi credit default swaps
SAGV5YUSAC=MG
rose 6 points to 182 points and stayed below highs hit earlier this month - a small move given the volatility in global markets.
The central banks of Saudi Arabia and the UAE issued statements saying they expected little impact on their financial sectors from Brexit because of limited exposure to Britain.
ID:nL8N19H0AD
(Reporting by Andrew Torchia) ((andrew.torchia@thomsonreuters.com; +9715 6681 7277; Reuters Messaging: andrew.torchia.thomsonreuters.com@reuters.net))
The Dow Jones industrial average
Beyond the global market unease, Brexit could hit Gulf economies and therefore markets in several ways. Slower growth in Europe may push down oil prices; Brent oil
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said that among the Gulf Cooperation Council economies, she expected the greatest impact of a weaker pound and euro to be felt in the United Arab Emirates, because of its large tourism and real estate sectors.
"We see a weaker private consumption and investment outlook in the UAE following Brexit," she said in a report.
She also noted that while Brexit was likely to deter any U.S. interest rate hike for the time being, it would probably require GCC economies to tighten fiscal policy further to limit the widening of their deficits and protect market sentiment.
"Moreover, with the fall in oil prices and elevated global market uncertainties, foreign borrowing rates for GCC entities will likely increase. This will place more pressure on domestic borrowing and potentially push up interbank rates further."
However, movements in Gulf forex forwards and sovereign debt insurance costs on Friday were minor, suggesting foreign investors were not for now using Brexit as a cue to speculate heavily against GCC assets.
One-year U.S. dollar/Saudi riyal forwards
Five-year Saudi credit default swaps
The central banks of Saudi Arabia and the UAE issued statements saying they expected little impact on their financial sectors from Brexit because of limited exposure to Britain.
(Reporting by Andrew Torchia) ((andrew.torchia@thomsonreuters.com; +9715 6681 7277; Reuters Messaging: andrew.torchia.thomsonreuters.com@reuters.net))
