Saudi bourse leads fall in Gulf stocks despite oil price rebound

Business Tuesday 06/September/2016 13:35 PM
By: Times News Service
Saudi bourse leads fall in Gulf stocks despite oil price rebound

Muscat: Stock markets in the Gulf region receded, despite a smart recovery in oil prices last month.
Despite Brent crude gaining 10.7 per cent last month, Saudi Arabian shares bore the brunt of the negative investor sentiment due to the indecisive situation prevailing among the Opec and non-Opec members to freeze oil production, according to the monthly market research report released by Kuwait Financial Centre ‘Markaz.’
Oman’s Muscat Securities Market (MSM) fell by 1.9 per cent, Bahrain’s bourse was down by 1.2 per cent, Jordan came down by 1.4 per cent and Morocco stocks dropped 0.2 per cent in value, says the report.
Saudi’s TASI, the largest bourse in the region shed 3.5 per cent followed by Abu Dhabi general index and Kuwait weighted index that lost 2.3 per cent and 1 per cent last month. With decline in major indices across the region, the S&P GCC index ended 1.2 per cent lower at 90 points.
The research note mentions that Qatar index jumped 3.6 per cent in August with the inclusion of Qatari stocks in the FTSE Emerging markets index. FTSE relaxed its liquidity rules for the Qatari blue chips to be included in the index after which blue chips in Qatar surged last month.
Ooreedo topped among the blue chips in the region registering month-to-date and year-to-date of 8.8 per cent and 36.9 per cent respectively. Among other indices that gained in August were Dubai (0.6 per cent) and Egypt (1 per cent), though the increase was modest compared to the previous month.
Blue chips were mixed in August with DP World and Ooredoo gaining 8.8 per cent and 8.1 per cent respectively. Four of the top five gainers were from Qatar, with Qatar National Bank and Industries Qatar share prices up by 7.5 per cent and 6.1 per cent respectively.
Investors flooded their investments into Qatari large caps after the announcement of FTSE to include them into the emerging markets index on August 24. Saudi stocks were at the bottom, National Commercial Bank) and Saudi Telecom plummeted by 8 per cent and 6.5 per cent in August.
Saudi Telecom’s profit for the first half of 2016 declined by 16 per cent year-on-year adding to the adverse sentiments attached to the Saudi stocks. Plans of Saudi Telecom to start its fourth generation mobile phone services in Egypt that was expected to give a boost to its revenue failed to materialise last month.
With declining oil income, banks in Saudi Arabia are facing tightened liquidity position. Government deposits are expected to decline and banks have started to raise capital through bond issuances to manage their finances. All these factors reflect in the 8 percent decline in stock prices of the largest lender in the kingdom, NCB.
Foreign investors
Saudi Arabia announced that it would liberalise restrictions on foreign investment in its securities markets on 4th Sep, sooner than previously indicated, in an effort to attract more institutional money into its bourse. When Riyadh opened its bourse to direct foreign investment in June 2015, it took a careful approach, imposing tight ownership limits and minimum qualifications for overseas institutions to reduce the risk of sudden changes in market dynamics. All types of foreign investors still own only 1.03 per cent of the $390 billion market.
Reforms in the stock market are in line with the country’s vision to reduce their dependence on oil. One major step in the direction is Saudi Aramco’s initial public offering (IPO), whose value is estimated to be anywhere from $2 trillion to $10 trillion. It would become difficult for the Saudi market to absorb the offer if foreign investments are highly restricted.
Ambitious plans of the government depend on the success of the Saudi Aramco IPO, for which a foreign investor friendly market becomes a pre-requisite. Easing regulations for foreign investments can also be seen as a step towards Saudi’s inclusion into MSCI emerging market inclusion.
Brent crude entered into the bull market in the month of August with the hopes of a supply freeze early in September. Investors turned positive and the oil jumped 10.7 per cent after the Saudi oil minister said that they would take action on the oversupply that flooded the market earlier. Uncertainties persist about the oil supply and prices in the coming months. Analysts claim that the oil rally might be short lived if Opec and non-Opec members fail to come to a consensus on supply freeze.
Despite relief in August, the threat oil faces is multi-pronged; rising inventories in the United States, the myth of undisclosed oil stored in the Chinese islands, the consensus of talks between the oil producing countries and the resurgence of dollar that would further weaken the oil price. An increase in the US interest rates will strengthen the dollar, posing a threat to oil. Uncertainties apart, August provided a sigh of relief for the oil market.