Mideast Stocks Sink With Oil as Saudis Pin Crude Halt on Others

  • Tadawul All Share Index drops to lowest level in five weeks
  • Planned Aramco IPO seen taking liquidity from regional markets

Saudi Arabian stocks declined to a five-week low, leading losses across most Middle Eastern equities, after the deputy crown prince triggered a slump in crude prices by placing the onus of reducing oil output on other countries.

The Tadawul All Share Index decreased 1.6 percent to close at 6,126.12, nearing the 50-day moving average it’s traded above for more than a month. Saudi Telecom Co. led the retreat in the first day of the exchange’s new trading hours. Dubai’s DFM General Index fell 1.6 percent and Kuwait’s SE Price Index slipped 0.4 percent.

Brent crude, a pricing benchmark for half the world’s oil, declined to $38.67 per barrel on Friday after Mohammed bin Salman told Bloomberg News that cutbacks in Saudi Arabia’s oil production must be coupled with that of other major producers, including Iran. His comments come weeks before a meeting in Doha this month to help limit output. Equities in the six-member Gulf Cooperation Council are closely correlated to the price of crude, which accounts for the bulk of government revenue.

“Saudi Arabia’s plan to freeze oil output on the condition that Iran does the same suggests to the market that the meeting in Doha this month will probably go nowhere, and that has weighed on stocks,” Sanyalak Manibhandu, the Abu Dhabi-based head of research at NBAD Securities LLC, said in a telephone interview. “Saudi Arabia is going to protect its market share, and they’re certainly not going to give it to Iran.”

While Iran will attend the talks, it has ruled out capping its oil output as it restores exports after sanctions were lifted in January. The commodity fell 4.4 percent last week, the biggest decline since the period ending Jan. 15.

Saudi Aramco IPO

The plunge in oil prices has strained government finances in the kingdom, leading to cuts in spending as well as lower domestic consumption. Three of the index’s four biggest decliners were banks that had their credit ratings downgraded by Standard & Poor’s on Thursday. Al Rajhi Bank, which has the largest weighting on the gauge, fell 0.7 percent. National Commercial Bank lost 2.6 percent and Saudi British Bank tumbled 6.4 percent, the most since December.

In a plan to diversify its economy away from oil, Saudi Arabia is seeking to sell a stake of Saudi Aramco on the stock exchange and create the world’s largest sovereign wealth fund, Salman said. The steps are intended to make the kingdom more reliant on income from investment rather than oil within 20 years.

“If Saudi Aramco does list, it’s going to suck liquidity from the region’s markets,” said Manibhandu. “Money managers will have to have a weighting in the company, and that will mean that they’ll need to reduce positions elsewhere.”

About 212 million Saudi Arabian shares were exchanged, 20 percent less than the 12-month daily average. Saudi Telecom dropped 4.2 percent.

Abu Dhabi’s Taqa

Abu Dhabi’s ADX General Index lost 0.7 percent, led by Aldar Properties PJSC’s 2.6 percent retreat. Trading volumes on the gauge were less then half the six-month daily average, according to data compiled by Bloomberg.

Abu Dhabi National Energy Co., the government-controlled utility otherwise known as Taqa, slid 6.1 percent on almost four times the three-month average trading volume. In addition to selling assets and reducing capital expenditure, the company plans to refinance $1 billion of debt due this year as lower oil prices hurt revenue.

Taqa’s debt profile. The company has $1 billion in bonds maturing this year.
Taqa’s debt profile. The company has $1 billion in bonds maturing this year.

Qatar’s QE Index dropped 1.2 percent and Bahrain’s BB All Share Index declined 0.4 percent. Egypt’s EGX 30 Index fell 0.1 percent. Oman’s MSM 30 Index bucked the trend, rising 0.4 percent.

Israeli Dollar Buys

The TA-25 Index retreated 0.1 percent. Bezeq Israeli Telecommunication Corp. led the decline, dropping 2.5 percent to 8.26 shekels, the lowest level in seven weeks. Citigroup last week said the regulatory reform that would save the country’s largest telecommunications operator millions of shekels remains a highly-charged political issue.

“There is some nervous sentiment that Bezeq’s regulatory overhang won’t dissipate as quickly as previously thought,” said Adi Babani, a Tel Aviv-based trader at Bank of Jerusalem. “Despite the more favorable tone adopted by the ministry of communications, it’s not a done deal until it’s done.”

Meanwhile, Bank of Israel Governor Karnit Flug pledged to keep intervening in the foreign exchange market if needed to tame the shekel, which gained more in March than any other month since 2011. The currency weakened 0.5 percent to 3.7753 per dollar on Friday as the central bank reportedly bought a “medium” amount of dollars. The shekel had risen to a record high against a basket of currencies a day earlier, according to data compiled by Bloomberg.

Israel’s benchmark government bonds due 2025 climbed 0.38 agora, the most since Feb. 24, to 100.55 agorot on the shekel on Sunday. The yield fell four basis points to 1.81 percent.

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