By Nikhil Lohade 

DUBAI--Stock markets in Saudi Arabia and its oil-exporting Persian Gulf neighbors traded sharply lower Sunday, tracking a global market selloff triggered by the United Kingdom's decision to leave the European Union.

Saudi Arabia's stock market, the region's biggest, fell 2.5% to 6386.66 in early trade, while Dubai's benchmark DFM Index was down 2.8% at 3274.87. Abu Dhabi's general stocks index slipped 2% to 4412.12 and Qatar's QE Index shed 1.7% to 9796.31.

Investors surprised by the result of the referendum sent global stocks tumbling on Friday and the British pound fell to a 30-year low amid uncertainty over the future of Europe. Oil prices posted their biggest one-day percentage decline since February.

Markets in the Gulf Cooperation Council bloc--which includes Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain and Oman--were closed Friday and Saturday for the weekend.

"Markets in the Middle East and North Africa will take guidance [on Sunday] from Friday's market slump," Simon Kitchen, a MENA strategist at Cairo-based EFG Hermes said, noting the oil price correlation--still at high levels--will weigh on Saudi stocks.

"However, while first day effects may be limited, we expect more volatility for the remainder of 2016 as post-Brexit pains combine with political uncertainty in Europe and the U.S.," Mr. Kitchen said.

The Dow Jones Industrial Average dropped 3.4% on Friday, the largest decline for the index since August. The Stoxx Europe 600 index shed 7%--its steepest drop since 2008, while Japan's Nikkei Stock Average fell 7.9%.

Several major central banks globally moved to calm the markets, promising to maintain stable prices and safeguard the stability of the financial system.

Saudi Arabia's central bank on Saturday said it revised its investment policy for pound- and euro-denominated assets, making some adjustments in a precautionary stance against the impact on financial markets.

The U.A.E.'s central bank said via a statement posted by the country's state-controlled news agency that it will continue to monitor the unfolding economic implications of the vote, and in particular developments that could impact the local economy. It added that due to limited interconnectedness between U.A.E. and U.K. financial systems, there are few channels through which Brexit uncertainty could affect the financial institutions here.

For the Gulf region, the biggest concern remains oil. A sharp fall in the price of crude since mid 2014 has weighed on the markets here as investors worry about the petrodollar-dependent economies. A recent recovery in oil prices, along with steps taken by some local governments such as Saudi Arabia to reshape their economies, boosted sentiment.

But Brent--the global benchmark-- fell nearly 5% on Friday to settle at $48.41 a barrel on ICE Futures Europe.

Still, some analysts expect the longer-term impact from the so-called Brexit on the Gulf markets to be limited.

Capital Economics says little will change in the short term as the U.K. will remain a member of the EU for at least two years, while the impact on economic growth in Europe and the U.K. is expected to be significantly less than feared by some. "As a result, demand for oil should continue to grow. What's more, any negative effects could well be offset by looser monetary policy," analysts at the London-based consulting firm said in a note to clients.

Most Gulf countries peg their currencies to the U.S. dollar, in which oil, their biggest revenue earner, is priced. This largely insulates the regional economies from global currency gyrations. And their stock markets are dominated by retail investors and local institutions that usually help limit the impact from international market volatility.

Neuberger Berman said the U.K. vote would probably exert only a marginal effect on global economic fundamentals, which remain stable but weak. Urging investors to focus on the fundamentals, its investment managers said, "The market reaction may provide opportunities to add to some positions in riskier assets once the worst of the initial volatility has passed."

Write to Nikhil Lohade at Nikhil.Lohade@wsj.com

(END) Dow Jones Newswires

June 26, 2016 05:04 ET (09:04 GMT)

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