DUBAI, United Arab Emirates, Aug 7, (Agencies): Stocks tumbled across the Middle East on Sunday as most regional markets reopened following the historic downgrade of the United States’ credit rating. The region’s markets mostly operate Sunday to Thursday. That meant they were the first to react to credit rating agency Standard & Poor’s decision late Friday to cut the US level one notch to AA+ from its top AAA rating. The only exception is OPEC powerhouse Saudi Arabia, which plunged 5.5 percent when it opened Saturday. It failed to significantly recover Sunday. “Clearly there’s a negative sentiment prevailing on the global financial markets. We’re seeing a strong contagion effect on our markets,” said Rami Sidani, the Dubai-based head of Middle East investments for British asset management firm Schroders.

Declines
The Dubai Financial Market’s benchmark index suffered some of the region’s steepest declines Sunday, tumbling more than 5 percent in early trading. It closed down 3.7 percent at 1,484 points.
While the S&P downgrade weighed on the Dubai market, it was also pulled down by a lower than expected quarterly profit from Arabtec Holding, the Emirati construction giant that helped build the world’s tallest tower in Dubai. Arabtec shares fell 6.3 percent to 1.3 dirhams (35 cents).
S&P’s US cut could shake investor confidence in the world’s largest economy and send tremors coursing through global markets. Traders worldwide are eagerly watching to see how far larger and more liquid markets in Asia and Europe react to the downgrade when they open Monday.
Financial ministers from the Group of Seven leading economies were preparing to hold a teleconference likely before Asian exchanges open to discuss efforts to stabilize world markets.
Other Mideast markets also fell Sunday.
The Abu Dhabi and Qatar market indexes each slumped 2.5 percent.
Egypt’s benchmark EGX30 index fell more than 4 percent. The Egyptian Exchange’s head, Mohammed Abdel-Salam, attributed the slide to declines in world markets rather than the fundamental value of the country’s companies.
Farouk Miah, an analyst at NCB Capital in the Saudi capital Riyadh, said Mideast traders are concerned that debt problems in the West could cut demand for crude and drag on oil-dependent economies in the region.

“There’s a renewed concern about the US debt situation and the European debt situation,” he said. “A lot of people were expecting a downgrade. I think the bigger concern is the oil price falling” because of slumping demand, he added.
If the downgrade drives the value of the dollar lower, big Mideast economies such as Saudi Arabia and the United Arab Emirates that peg their currencies to the greenback could also suffer from higher import costs, Miah said.
Saudi Arabia’s stock market was the only one in the region to open Saturday. The Tadawul’s main index edged slightly higher Sunday, creeping up a tenth of a point following the previous day’s rout.
Miah attributed the small uptick to day traders looking to make a quick profit, not a sign of renewed confidence. He expects Mideast markets to slump further if other global markets tumble on the US debt downgrade.

In Israel, the Tel Aviv Stock Exchange delayed the start of the week’s first session after pre-market trade showed the benchmark index dropping more than 6 percent because of concerns over the US debt rating cut.
Exchange spokeswoman Idit Yaaron said the start was pushed back by 45 minutes “so market players will have time to react logically and not under pressure.”
The country’s benchmark TA-25 index plunged 7 percent to close at 1,074 points.
Oman’s index ended at a two-year low, down 1.9 percent at 5,651 percent. Bahrain fell 0.33 percent to 1,277 percent while Abu Dhabi ended at a May 26 low, down 2.5 percent. Kuwait ended 1.6 percent lower at 5,968 points.
“The global story is looking increasingly less optimistic, and at the same time you have equity markets here that have been relatively less volatile for a considerable stretch,” says Akram Annous, Dubai-based MENA strategist at Al Mal Capital.


“That’s probably going to start to change now, and I think the majority of the risk is in Saudi Arabia and Qatar’s markets because they are more leveraged to the (emerging market) growth story.”
Qatar’s benchmark closed at its lowest level since June 27, down 2.5 percent at 8,277 points. Saudi Arabia’s index ended up 0.08 percent at 6,078 points.
“Today is a stemming of the bleeding, but things are still unknown. There are a lot of questions, on how the downgrade could affect the Saudi development plan,” said a Riyadh-based fund manager who asked not to be identified.
Saudi Arabia has pledged to spend up to $400 billion in the five years to 2013 to upgrade its infrastructure and has a plan to build economic and industrial cities to create new jobs.
Investors were eyeing Monday’s opening of global markets with trepidation. Regional bond prices had begun to ease on Friday and a further sell-off is expected.
The spread on HSBC/Nasdaq Dubai’s Middle East bonds and sukuk index widened about 30 basis points between Aug 3 to 5.

“Shorter-dated local bonds and sukuk should hold up relatively well because of local demand,” said Nick Stadtmiller, fixed income analyst at Emirates NBD in Dubai. “But longer-dated bonds will have a harder time, as international investors are key buyers of this paper.”
The US dollar may weaken and Treasury yields rise when Asian markets reopen on Monday, though any selling in response to the U.S downgrade is likely to be tempered by the escalating crisis in the euro zone. The European Central Bank was slated to discuss the debt crisis in an evening conference call
“The US market will continue to attract liquidity. It is more sophisticated and more technology driven and it will always be attractive,” said CAPM’s Yasin. “We don’t have that in our markets and it’s going to be a tough ride going forward.”