Saudi Stocks Defy Moody’s Cut as Maaden Rallies; Dubai Retreats

  • Tadawul little changed as traders look past rating downgrade
  • DFM General Index drops after Emaar, Arabtec statements

Moody's Cuts Saudi Arabia, Bahrain Ratings

Saudi Arabian stock investors showed they care more about the price of oil than what New York-based Moody’s Investors Service Inc. thinks about the kingdom’s debt dynamics.

A day after Moody’s became the latest company to reduce the nation’s credit rating, the Tadawul All Share Index added as much as 0.8 percent before closing little changed. Saudi Arabian Mining Co., known as Maaden, helped shore up stocks with a 3.8 percent gain. Elsewhere in the region Dubai’s DFM General Index lost 1.2 percent as companies reported financial results that fell short of some analyst estimates.

“Oil prices have stabilized, with Brent around $47,” said Muhammad Faisal Potrik, the head of research at Riyad Capital. “That’s good for the markets. People have largely ignored the Moody’s downgrade news as it was expected.”

Brent crude rose more than 5 percent in the week ending Friday, bringing its increase since a 2003-low in January to 72 percent. Still, Saudi Arabia is pushing ahead with efforts to diversify its economy away from oil, with investors speculating that Maaden will become more profitable as the kingdom seeks to boost its mining industry. The Saudi Public Investment Fund replaced its representatives on the board and named Aramco’s Khalid Al-Falih as chairman last month. Al-Falih was also named oil minister about a week ago.

Post-Oil Plan

Traders exchanged almost 7 million Maaden shares, about twice the average in the past 20 days. The stock’s 14-day relative strength index rose to 78; a level above 70 is a sign to some analysts that a company has risen too fast and is poised to reverse.

As part of its strategy for the post-oil era, Saudi Arabia in the coming weeks plans to unveil a National Transformation Program that will focus on ways to boost economic growth, create jobs, attract investors and hold government offices more accountable.

The program “will include more details of the plan to transform their economy,” said Tariq Qaqish, the Dubai-based head of asset management at Al Mal Capital PSC. “The market has been driven recently by news, and Saudi is hitting the wires more and more for good reasons.”

The Tadawul has gained five of the past six weeks, with companies on the gauge trading at about 13.2 times expected earnings in the next 12 months, near the most expensive since August.

Moody’s Cut

Some oil producers in the six-nation Gulf Cooperation Council had their debt grades lowered by Moody’s on Saturday because of the collapse in oil prices, with the ratings company saying there had been a “material deterioration” in Saudi Arabia’s credit profile. The region is home to about 30 percent of the world’s crude.

Moody’s cut the kingdom’s long-term rating to A1, the fifth-highest investment grade. It cut Oman by one step to Baa1 and changed its outlook for crude exporters including Abu Dhabi, Qatar and Kuwait to negative.

Abu Dhabi’s ADX General Index dropped 0.3 percent after posting its third-straight weekly decline, the longest streak since January. Kuwait’s SE Price Index fell 0.4 percent. Oman’s MSM 30 Index was little changed.

Dubai Results

The DFM General Index was led by Emaar Properties PJSC, which slipped 1.1 percent after saying revenue from hospitality and sales of apartments and commercial units dropped in the first quarter.

Drake & Scull International PJSC, the Dubai-based contractor, declined 4.6 percent after reporting a 61 percent drop in first-quarter profit to 9.8 million dirhams ($2.7 million). Shuaa Capital PSC, whose loss in the period widened to 27.5 million dirhams from 1.6 million dirhams, fell 3.7 percent.

Arabtec Holding, the builder of the world’s tallest tower in Dubai, retreated 4.6 percent to the lowest level since February. The company is proposing to use its statutory reserve balance to reduce accumulated losses in order to improve its balance sheet, according to a statement to the stock market after the close. It reported a first quarter loss of 46.4 million dirhams.

About 127 million shares traded on Dubai’s main gauge, less than half the 20-day average.

Bahrain Bond Sale

Moody’s also reduced Bahrain’s rating one level to Ba2. The smallest member of the GCC and host to the U.S. Fifth Fleet is raising $435 million from privately placed Islamic bonds, according to people familiar with the matter. The BB All Share Index slipped 0.2 percent.

Egypt’s EGX 30 Index retreated 2 percent at the close in Cairo on less than half of the average trading volume over the past 20 days. Commercial International Bank, the nation’s biggest-listed lender that accounts for about 40 percent of the gauge, declined 1.8 percent after first quarter results missed estimates.

S&P Global Ratings reduced the credit outlook for North Africa’s biggest economy to negative from stable, citing its expectation of the persistence of a foreign currency shortage as aid from Gulf Arab allies recedes amid depressed oil prices. A 13 percent devaluation of the Egyptian pound in March has failed to attract foreign capital, while driving up what is already one of the Middle East’s highest inflation rates.

“The S&P decision is having the biggest impact on the market today,” said Hesham Wafa, a Cairo-based institutional sales trader at Mubasher Trade. “Retail investors are nervous about how fund managers will react to it because it raises the likelihood of a downgrade. It speaks to the government’s inability to carry out economic reforms.”

Orascom Telecom Media & Technology, the investment vehicle of billionaire Naguib Sawiris, fell 2.8 percent. The company said on Thursday it agreed with Commercial International Bank on a fourth postponement of a deal to buy the latter’s investment banking unit CI Capital, which was due to be concluded at the end of March. The buyout is pending approval by Egypt’s market regulator.

Israel Retreat

Israel’s TA-25 Index slipped 1.4 percent to the lowest level in three months as trading resumed following a two-day holiday. The gauge’s average price for the last 50 days is close to crossing its 100-day moving average, a bearish indicator to some investors.

Fourteen companies on the TA-25 declined, and nine stocks advanced. Dual-listed generic drugmakers Perrigo Plc and Mylan NV led the retreat, extending losses from last week.

“Pharma is under attack in the U.S.,” said Saar Golan, a Tel Aviv-based trader at Bank of Jerusalem Ltd. “These dual-listed companies, because of their large weighting in the Tel Aviv index, are pushing it down for no local reason.”

Before it's here, it's on the Bloomberg Terminal.