Saudi Stocks Erase Losses as Investors Bet Yemen Rout Overdone

Saudi Arabian stocks recovered from the lowest level in two months as investors speculated that the selloff triggered by escalating violence in neighboring Yemen went too far.

The Tadawul All Share Index, which earlier dropped as much as 4.2 percent, closed 0.4 percent higher. The gauge slumped 5 percent yesterday, with 38 companies trading below a 14-day relative strength index reading of 30, the most since Dec. 17. Readings less than 30 typically indicate a security is oversold.

“People see the price drop as an opportunity and are buying the stocks at better valuation,” John Sfakianakis, the Riyadh-based head of Middle East at Ashmore Group Plc, which has about $99 billion of assets under management, said by phone. “Once logic sets in, the market rallies. Yesterday’s drop was unmitigated and today we are seeing the oil rallying and more reasoning prevailing in the market.”

The stock swing will compound the Tadawul’s status as one of the most volatile equity gauges in the world as it prepares to open to foreign direct investment for the first time this year. Saudi Arabia and its Gulf Arab allies started bombing Shiite Houthi targets in Yemen Thursday. They launched “the military operations in support of the people of Yemen and their legitimate government,” Saudi Ambassador to the U.S. Adel al-Jubeir said in a statement.

Saudi Arabia’s market was the world’s seventh most volatile index today, according to data compiled by Bloomberg.

Dubai Drop

Other regional markets were less resilient. Dubai’s DFM General Index lost 0.8 percent to 3,407.25, its weakest close since Dec. 17. The Bloomberg GCC 200 Index, a gauge of the Gulf Cooperation Council’s top 200 equities, slid to the lowest level since Jan. 26.

The Gulf states are “effectively declaring war on Yemeni rebels,” Ramez Merhi, a Dubai-based director for asset management at Al Masah Capital Ltd., which manages $500 million, said by e-mail. “This has heightened uncertainty and we should expect acute volatility in the regional markets going forward.”

Egypt, Pakistan, Morocco, Jordan and Sudan are also part of the operation in Yemen, according to Al Arabiya TV, bringing the total number of aircraft involved to 185. The air strikes come after forces loyal to the rebel group marched on the southern port city of Aden, the stronghold of Yemen’s President Abdurabuh Mansur Hadi.

Saudi Arabia and other Gulf nations are taking more assertive military action to prevent the instability across the Middle East from hurting their interests in the region. Saudi and U.A.E. air forces are already participating in U.S.-led air strikes against Islamic State in Syria, while in 2011, Saudi troops entered Bahrain to crush protests by the mainly Shiite Muslim majority in the island nation.

Oil Price

The six-nation GCC is home to about a third of the world’s proven crude reserves, and Saudi Arabia is the world’s biggest oil exporter. Brent crude, a benchmark for more than half the world’s oil, rose 3.4 percent to $58.38 a barrel at 3:44 p.m. in London, bringing its two-day rally to 6 percent.

The 30-day historical volatility on Dubai’s DFM General Index was 22.2 today, the fifth highest in the world. The Tadawul’s was 19.9. Greece was the most volatile market at 53.5.

Dubai Financial Market PJSC slipped 3.2 percent after its parent Bourse Dubai Ltd. said yesterday it’s selling its entire stake in London Stock Exchange Group Plc for 1.4 billion pounds ($2.1 billion), exiting an eight-year investment in Europe’s oldest independent bourse.

‘Heightened Tension’

Egypt’s EGX 30 index retreated 1.6 percent to the lowest level since Jan. 11. The benchmark stock index in Qatar lost 0.8 percent and Bahrain’s decreased 0.7 percent. Kuwait’s main stock gauge dropped 2.4 percent and Oman’s fell 2.6 percent. Abu Dhabi’s ADX General Index was little changed.

Israel’s TA-25 Index dropped 1.1 percent in Tel Aviv, the biggest decline since Oct. 12. Frutarom Industries Ltd., the maker of flavors for Coca-Cola Co. and Nestle SA, declined 3.5 percent to 138 shekels, the lowest since March 16.

“The TA-25 Index is down mainly following global markets amid regional tension heightened by the Saudi strikes in Yemen and concern of an escalation with Iran,” Saar Golan, a trader at Bank of Jerusalem Ltd. in Tel Aviv, said by phone.

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