Saudi Arabian Stocks Lead Most Arab Markets Higher as Oil Rises

  • Tadawul Index correlation with oil is strongest in 5 years
  • Egypt's shares slump as central bank extends pound devaluation

Equities in Saudi Arabia, OPEC’s biggest oil producer, led most Arab markets higher after global stocks rallied and Brent crude rose above $50 a barrel. Israeli stocks closed the highest in almost a month.

The Tadawul All Share Index climbed 1.2 percent to 7,792.62 at the close in Riyadh, led by a 2.7 percent increase in Saudi Basic Industries Corp., one of the world’s largest petrochemical producers, also known as Sabic. The correlation between the price of oil and Saudi stocks measured on a weekly basis was the strongest in five years. Dubai’s DFM General Index closed 0.3 percent higher and Abu Dhabi’s ADX General Index added 0.6 percent.

Correlation chart shows Tadawul has increasingly moved in lockstep with oil prices over the last year.

“Because there’s an absence of any local catalysts and because stock markets rallied worldwide, investors have courage to buy stocks in the region without worrying about a crash,” said Sebastien Henin, the head of asset management at The National Investor in Abu Dhabi. “While the impact of oil’s increase won’t be material on a macroeconomic level, it could have an impact on a sentimental level given how reliant the region is on energy.” Henin said he’s considering purchases of banking stocks in Kuwait and real estate stocks in Egypt because of their low valuations.

Global equities are climbing as a run of weaker-than-estimated economic reports from Asia to Europe boosts speculation central banks will maintain stimulus measures. U.S. stocks are on track for the best performance in four years and the Stoxx Europe 600 Index rose for a second day on Friday. Brent crude, a benchmark for half the world’s oil, also advanced after Baker Hughes Inc. said rigs targeting oil in the U.S. fell to a five-year low last week, raising speculation American output may drop.

Saudi Arabia, which relies on energy for about 90 percent of government revenue, has seen its benchmark equities gauge lose 14 percent in the second half of the year amid the slump in oil prices. That’s among the world’s 10 worst performing indexes over the period. Brent crude advanced 1.5 percent to $50.46 a barrel on Friday, curbing last week’s decline.

The six-nation Gulf Cooperation Council is home to about 30 percent of the world’s proven oil reserves. Despite declines in oil prices and third-quarter profit, Sabic said it plans to go ahead with investment plans in China and North America.

Qatar’s QE Index fell 0.1 percent and Bahrain’s BB All Share Index lost 0.7 percent, while gauges in Kuwait and Oman rose 0.7 percent and 0.3 percent.

Israel Taxes

Israel’s TA-25 Index climbed 1.2 percent to 1,544.67 at the close, the highest since Sept. 21. Teva Pharmaceutical Industries Ltd. was the biggest contributor to the increase with a 3.1 percent gain after announcing that it’s considering the sale of Middle East assets. Bezeq Israeli Telecommunication Corp. advanced 1.3 percent.

On Friday, Fitch Ratings affirmed Israel’s long-term foreign-currency debt rating at A, the sixth-best investment-grade ranking, citing “solid macroeconomic performance and high financing flexibility” with a high government debt to gross domestic product ratio. Police and military forces clashed with Palestinians over the weekend, extending the worst violence since last year’s war in the Gaza Strip.

The yield on the nation’s 1.75 percent benchmark bonds due August 2025 was unchanged at 2.09 percent.

“There’s a continuing recovery of Israeli markets as investors take the uptick in violence in stride,” Saar Golan, a Tel Aviv-based trader at Bank of Jerusalem Ltd., said by phone. “We will see sellers coming in if we see a further escalation to current levels of violence. Historically, in the long term investors tend to look at macro-economic conditions and global markets and ignore geopolitical events.”

Israel Chemicals, one of the nation’s biggest exporters, fell 1 percent. The government said it won’t lower taxes on potash profits, even after the company threatened to cancel up to $1.3 billion of planned domestic investments. The stock has dropped 24 percent this year, compared with a 5.4 percent advance for the TA-25 Index.

Egypt Devaluation

Egypt’s EGX 30 Index retreated 0.7 percent as the central bank weakened the Egyptian pound in its third round of devaluations this year. Commercial International Bank Egypt SAE, the nation’s biggest-listed lender, fell 1.3 percent. The regulator weakened the currency by 1.3 percent at a sale of dollars to lenders, taking its decline on the year to 11 percent.

“While we could attribute the current market reaction to panic and uncertainty, what we are sure of is that the central bank has chosen the path that is consistent with a medium-term recovery, ”Hany Genena, chief economist at Cairo-based Pharos Holding, said in an e-mailed report. “We expect the market to gradually reward these steps particularly when the government announces a concrete and credible plan to fund the balance of payments gap of 2016.”

Egyptians began voting in the first parliamentary election in more than three years as the government of President Abdel-Fattah El-Sisi aims to have a sitting parliament before year-end.

(An earlier version of this story corrected the move in oil prices in the third paragraph.)

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