Saudi Shares Plunge as U.S. Downgrade Fuels Concern Over Global Economy

Saudi Arabian shares tumbled for a third day, sending the benchmark index to its largest intraday drop since March, amid rising concerns about the global economy after Standard & Poor’s cut the U.S.’s credit rating for the first time.

Saudi Basic Industries Corp. (SABIC), or Sabic, the world’s biggest petrochemicals maker, fell the most in five months. Al Rajhi Bank (RJHI), the kingdom’s largest publicly traded lender by market value, reached its lowest price since March.

The 147-company Tadawul All Share Index (SASEIDX) slumped 5.5 percent to 6,073.44, the steepest decline since March 1, at the 3:30 p.m. close in Riyadh. All 15 industry groups fell. The gauge has fallen 10.5 percent from the year-high of 6,788.42 on Jan. 16.

“The Saudi market is reacting to the steep declines in global markets over the weekend,” said Asim Bukhtiar, an equity analyst at Riyad Capital. “Growing concerns of the U.S. relapsing into recession are driving sentiment.”

U.S. stocks fell the most in 32 months this week and European stocks posted their biggest weekly loss since November 2008. The S&P 500 slumped 7.2 percent, the biggest weekly drop since November that year. The Stoxx 600 Europe Index tumbled 9.9 percent to 238.88 this past week, the gauge’s lowest level in 13 months.

Oil tumbled 9.2 percent this week, the biggest drop since the week ended May 6. Crude for September delivery was settled at $86.88 a barrel on the New York Mercantile Exchange. Saudi Arabia holds 20 percent of the world’s proven oil reserves.

U.S. Downgrade

“The combination of the global equity and commodities meltdown during the Saudi weekend, and to a lesser extent the expected downgrade by S&P, is having an impact on all sectors of the market,” said Fuad Aghabi, a director at Ajeej Capital, in Riyadh.

Standard & Poor’s downgraded the U.S.’s AAA credit rating for the first time since 1941. S&P lowered the U.S. one level to AA+ while keeping the outlook at “negative”. The U.S. immediately lashed out at S&P, with a Treasury Department spokesman saying the firm’s analysis contains a $2 trillion error. The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, the New York-based firm said yesterday.

“At this point, the impact of the ratings downgrade is not evident,” said Bukhtiar. “Regional markets will take their cue from global markets on Monday when they open.” Saudi Arabia’s holdings of foreign securities rose 12 percent this year to a record 1.32 trillion riyals ($350 billion) as of June 30, Saudi central bank data show.

Sabic, Al Rajhi

Sabic slumped 5.8 percent to 97.75 riyals, the sharpest decline since March 1. Al Rajhi declined 5.2 percent to 68.25 riyals, the lowest price since March 2. National Industrialization Co. (NIC), known as Tasnee, dropped 7.3 percent, the sharpest fall since April 4, to 39.30 riyals.

A total of 144 shares dropped while one stock gained. Rabigh Refining and Petrochemicals Co. sank 9.9 percent to 22.60 riyals and Kingdom Holding Co. (KINGDOM) weakened 9.6 percent to 7.10 riyals.

“This is a reaction to global instabilities, however, the fundamentals of the Saudi market remains strong, evidenced by very good first-half results,” said Aghabi.

Saudi Arabia’s stock exchange is the only Gulf Arab bourse open on Saturdays.

To contact the reporter on this story: Mourad Haroutunian in Riyadh at mharoutunian@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

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