Saudi Arabian stocks reversed losses that put them on the brink of a bear market after some investors speculated the selloff was overdone.
The Tadawul All Share Index closed 0.3 percent higher at 8,012.83 after retreating as much as 3.5 percent. The gauge traded at about 13 times 12-month forward earnings, near the lowest since January. Its 14-day relative strength measure increased to 18 after falling to the weakest since December on Wednesday. A level below 30 is a signal to some investors of a recovery in prices.
An unexpected increase in U.S. crude stockpiles and record oil production from Saudi Arabia in June deepened concern that growing oversupply will continue to impact oil prices as nations tussle over market share. Saudi stocks retreated two months after the kingdom allowed foreign traders direct access to its equity market as part of a plan to diversify the economy away from oil. Almost all of the government’s revenue comes from crude.
“What happened with oil and Saudi has really hurt the market but the sell-off was aggressive” said Ahmed Shehada, the head of advisory and institutions at NBAD Securities LLC, the brokerage of the United Arab Emirates’ biggest lender. “Investors have come to grips with where the market is and we’re seeing value buying again. The fear is subsiding.”
Brent crude, a benchmark for more than half the world’s oil, slid 0.5 percent to $46.93 a barrel at 1:46 p.m. in London, headed for the lowest since January. Also, oil futures in New York extended their decline after closing at a six-year low on Wednesday.
Governments in the six-nation Gulf Cooperation Council, home to about 30 percent of the world’s proven oil reserves, rely on income from crude to fund spending.
Saudi Arabian Mining Co. and Jarir Marketing Co. led the increase in Saudi stocks after advancing 4.1 percent and 2.2 percent, respectively. The yield on Saudi Electricity Co.’s $1.5 billion of securities due April 2024 rose five basis points to 3.56 percent, the highest since December on a closing basis.
Tadawul’s 30-day volatility index jumped to the highest since May and its 50-day gauge increased to the strongest level since June.
One-year forward contracts for the riyal headed for the highest close since March 2003, showing increased speculation that the currency will depreciate, according to data compiled by Bloomberg. The nation’s five-year credit default swaps rose to 102 basis points, the highest since August 2012 on a closing basis, according to CMA data compiled by Bloomberg.
Equity markets across the region also tumbled. Dubai’s DFM General Index declined 3.2 percent, the most in the GCC, retreating to the lowest level in more than four months. Qatar’s QE Index fell 2.5 percent to the weakest close since December. The Bloomberg GCC 200 Index, which tracks the region’s top 200 equities, decreased to the weakest level in more than seven months.
“Oil prices will continue to be the main factor for GCC economies” and drive stock markets going forward, said Dubai-based Tariq Qaqish, who oversees $150 million as the head of asset management at Al Mal Capital PSC. Qaqish is holding off investment decisions until volatility subsides and crude prices stabilize.
The yield on Dubai government’s $500 million of bonds due June 2021 added five basis points, the most in more than two months, to 3.36 percent, according to prices compiled by Bloomberg.