Saudi Stocks Sink as King Signals Changes to Government Spending

Saudi stocks declined after a speech by the king stoked speculation the Arab world’s biggest economy will probably cut spending next year as the plunge in oil prices pressures the nation’s finances.

The Tadawul All Share Index reversed gains of as much as 0.6 percent to close 1.6 percent lower after King Salman said in an annual address published by the state-run Saudi Press Agency that the country will focus on "raising the efficiency of government spending."

“Now it is becoming clear that the government will be reducing spending and it’s a reality check for investors,” John Sfakianakis, a Riyadh-based Middle East director at Ashmore Group Plc, said by phone. “This means the economy will be slowing down and that will have an impact on the wider market.”

Saudi Arabia’s income has declined as oil, its main source of revenue, trades near its lowest level in 11 years and the war in neighboring Yemen drains its coffers. The kingdom’s foreign reserves dropped for a ninth-straight month through October, and it sold bonds for the time since 2007. Standard & Poor’s this quarter cut the country’s sovereign debt rating, citing a possible increase in Saudi Arabia’s budget deficit to 16 percent of gross domestic product this year.

The kingdom plans to announce its 2016 budget on Monday, according to state-run broadcaster al-Ekhbariya, the first under King Salman and an economic council dominated by his increasingly powerful son.

Saudi Basic Industries Corp., one of the world’s largest petrochemical manufacturers, dropped 3.6 percent to the lowest level in more than a month. The stock was the biggest contributor to the index’s decline followed by Al Rajhi Bank, which fell 2.4 percent. Brent crude retreated 40 percent in the past 12 months to $36.79 a barrel as of 2:05 p.m. in London, near the lowest level since 2004.

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