Saudi Stocks Tumble as Government Studies Cutting Fuel Subsidies

Saudi Arabian equities fell to the lowest level in two months after the government said it’s considering an increase in domestic energy prices.

The Tadawul All Share Index lost 3 percent, the most since August, to close at 7,097.59, the worst drop among more than 90 gauges tracked by Bloomberg after Russian stocks. Al Rajhi Bank and Saudi Basic Industries Corp., the companies with the highest weightings on the index, were the biggest contributors to the drop.

OPEC’s biggest producer is studying whether to raise domestic energy prices in order to cope with the decline in oil prices, Reuters reported, citing Ali Al-Naimi, the kingdom’s oil minister. The country drained 11 percent of its foreign reserves in the year to August, started selling debt and is curbing domestic investment to cope with a more than 40 percent decline in Brent crude prices in the past 12 months. The Tadawul is poised for the worst year since 2008.

"Reports that Saudi Arabia may reduce oil subsidies caused panic among investors because the cost of doing business will rise," said Tariq Qaqish, the head of asset management at Dubai-based Al Mal Capital PSC, which is seeking opportunities to buy Saudi stocks if prices fall further.

Al Rajhi sank 3.1 percent to 51.42 riyals, the lowest level since January. Saudi Basic, also known as Sabic, declined 2.9 percent to 81.74 riyals, the weakest in three weeks. The company is looking to cut up to 30 percent of costs by eliminating jobs in order to deal with a market outlook that has become "very, very tough," Abdulaziz Al-Humaid, Sabic’s executive vice president of metals, said at conference in Riyadh on Tuesday.

Brent lost 1.6 percent to $46.79 a barrel as of 1:04 p.m. in London.

"Raising government revenues in a weak oil-price environment is a trend emerging throughout the region," said Riyadh-based Muhammad Faisal Potrik, the head of research at Riyad Capital. "Reducing or eliminating subsidies for industries such as petrochemical producers and cement for example can have a very direct negative impact on corporate profits.”

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