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Saudi stocks became the first in the Gulf region to enter a bear market in 2022 as a plunge in oil prices soured sentiment after nearly two years of outperformance.

The Tadawul All Share Index closed 2.3% lower on Monday, taking its slide from a May high to 21% and confirming a technical bear market.

Saudi stocks have dropped as investors grow concerned that the global economy is headed for a downturn, hampering demand for oil, the kingdom’s primary export. Until May, the country’s equities had been perceived as a haven in emerging markets, boosted by elevated energy prices and government initiatives to diversify the economy.

Growth worries and a degree of global portfolio contagion for high net worth local investors are hurting performance, according to Hasnain Malik, a strategist at Tellimer in Dubai. “For a while, along with the rest of the world, the Tadawul may take its cue from the US Fed more than anything more local,” he said.

With a drop of 3.3% this year, the Tadawul is still outperforming MSCI Inc.’s benchmark of emerging markets, which is down 28%. Saudi shares trade at a 35% premium to developing nation peers, above the average of 23% for the past decade. At the same time, the Tadawul’s 14-day relative strength index has slipped into oversold territory, typically an indicator of an imminent bounce.

(Updates with closing prices.)

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