GCC markets went through a strong correction in 3Q15, led by Saudi Arabia, said a recent report compiled by NBK.

The correction wiped out all gains made thus far in 2015, with GCC markets down 14% during the quarter.

A strong retreat in Chinese equities, alongside Fed policy uncertainty, triggered a worldwide correction. GCC markets were not spared, especially with oil prices taking another dive.

Geopolitically, things have also been stirring. While markets have not had a strong reaction to any one particular event, security concerns have weighed somewhat on general sentiment.

Meanwhile, speculation over whether the Fed would hike its policy rate and fears of foreign exchange wars in emerging markets have made equity markets all the more nervous and volatile. In 3Q15, GCC markets shed more than $163 billion in capitalization, which fell to $940 billion at the close of the quarter.   

Oil was another driver of regional equity markets since mid-2014 and continued to be so in 3Q15, noted the report.

Oil prices and GCC equities have moved largely in tandem since oil prices started retreating in the 2H14. The relationship has been far from symmetrical with correlations increasing notably when oil prices took a dive, as they did in August. With the exception of the large petrochemical sector in the Saudi stock market, GCC equities have minimal direct exposure to oil markets to warrant such correlation.

However, low oil prices do raise concerns about fiscal sustainability and growth in GCC economies.

While GCC governments have expressed their commitment to support growth in the non-oil sector by sticking to their current development spending plans, a prolonged period of low oil prices could force governments to reduce capital spending or pressure finances. Indeed, the recent move by the Saudi government to issue bonds ($28 billion this year) to finance the fiscal deficit served to remind markets of these concerns.