MIDEAST STOCKS-Qatar, GCC markets set to drop as ties severed – Reuters

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By Celine Aswad
| DUBAI, June 5

Stock markets in Qatar and the
rest of the six-nation Gulf Cooperation Council look set to drop
on Monday after Saudi Arabia, Egypt, the United Arab Emirates
and Bahrain severed ties with Doha, accusing it of supporting
terrorism.

Saudi Arabia said it had severed all land, sea and air
contacts with Qatar. Abu Dhabi’s Etihad Airways said it would
suspend flights from Tuesday. Saudi Arabia, the UAE and Bahrain
gave Qatari visitors and residents two weeks to leave their
borders.

With an estimated $335 billion of assets in its sovereign
wealth fund, a trade surplus of $2.7 billion in April alone and
extensive port facilities, Qatar appears likely to be able to
ride out the impact without any economic crisis.

The GCC states do little merchandise trade with each other,
instead relying on imports from outside the region, and Qatar’s
liquefied natural gas shipments by sea are expected to continue
normally. GCC investments in Qatar’s stock market are believed
to be minor.

Nevertheless, the diplomatic rift – the worst in years – is
expected to have a considerable impact on investor sentiment,
outside Qatar as well as within the country.

“All GCC markets will fall today – this is unprecedented and
we are entering unknown territory. This is not good news for the
markets,” said a Dubai-based portfolio manager.

“The markets have been quiet in search of a catalyst, and
this is it…There will be a lot of exiting today.”

After Saudi Arabia, the UAE and Bahrain withdrew their
ambassadors from Qatar in March 2014, the Qatari stock market
immediately tumbled 2.3 percent and remained weak for about
three weeks, before rebounding strongly as Qatar entered MSCI’s
emerging market index.

Some fund managers said Qatari banks could be hardest hit.

“Qatari banks that are exposed to those countries that have
severed ties with it will be very vulnerable, and vice versa –
companies that have borrowed from Qatari banks may have to
figure out how to negotiate loans and deals,” said a Doha-based
asset manager.

Also, some Qatari banks have been borrowing from overseas to
offset tight liquidity in the domestic money market; they may
now find it more expensive to borrow.
(Editing by Andrew Torchia)