Saudi Stocks Drop Most in World After Kingdom Cuts Pay, Bonuses

  • Hotel index slumped 9.6 percent, the most since November 2008
  • Saudi government scraps bonuses and cuts ministers’ salaries

Saudi Arabian stocks fell more than any other market in the world as the kingdom announced measures to cut the budget deficit that are likely to damp consumer spending.

Not a single stock rose on the Tadawul All Share Index, which retreated 3.8 percent on Tuesday, the most since January. The hotel and media indexes were the biggest decliners on a percentage basis, while Al Rajhi Bank was the largest contributor to the main gauge’s loss.

The following are some of the key highlights of the Saudi market on Tuesday:

  • The Tadawul All Share Hotel & Tourism Industries Index and the Tadawul All Share Media & Publishing Industries Index tumbled 9.6 percent and 7.5 percent, respectively
  • All but six of the Tadawul’s 174 members fell
  • Saudi stocks led a decline in Bloomberg’s GCC 200 Index, which dropped 1.6 percent
  • The Tadawul’s 14-day relative strength index fell below 30 for the first time in a month
  • Index members traded at 11.2 times estimated future earnings, the lowest level in seven months

The world’s biggest oil exporter curbed state employees’ allowances and canceled bonus payments, the official Saudi Press Agency reported on Monday. It also reduced ministers’ salaries by 20 percent and that of members of the Shura Council, which advises the monarchy, by 15 percent.

“Government pay was sacred during the previous decades,” said Mohammed Alsuwayed, the Riyadh-based head of capital and money markets at Adeem Capital. “This move shows how serious the government is” about implementing its austerity plan, he said.

Saudi Arabia, the world’s biggest oil exporter, is seeking to reduce spending in an effort to shore up its finances following the collapse in crude prices. The nation’s budget deficit swelled to about 15 percent of gross domestic product last year, the widest since 1991, according to central bank data compiled by Bloomberg. The kingdom allowed foreigners direct access to its stock market for the first time in 2015 and relaxed the rules further this month in a bid to lure investors.

Worst Performer

The Tadawul is headed for its third monthly loss and is the worst performer across the Middle East and North Africa this year. The index has lost 17 percent, compared with a 6 percent retreat for the GCC 200 Index, a measure of the largest and most liquid companies in the six-nation Gulf Cooperation Council.

After Tuesday’s decline, the biggest among more than 90 of the world’s most liquid gauges tracked by Bloomberg, estimated future earnings for the Tadawul’s members sank to the lowest level in seven months. That’s left Saudi Arabian stocks at their cheapest level in seven years relative to emerging-market peers, with the index’s valuation dropping to 11.2 times earnings, compared with 12.5 times for the MSCI Emerging Markets Index.

Its 14-day relative strength index slipped below 30 for the first time in a month, a sign to some analysts that a measure has fallen too fast and may be poised to rebound.

Al Rajhi Bank lost 3.5 percent, its steepest decline since January. Jabal Omar Development Co. also retreated 3.5 percent, bringing its losing streak to seven days, the longest since June 2015.

The Saudi government has taken measures to cope with oil prices that have lingered below $50 a barrel for most of 2016. The kingdom this year delayed payments owed to contractors and started cutting fuel subsidies. The Saudi Arabian Monetary Agency, as the local central bank is known, announced this week it was stepping up efforts to support local lenders by giving banks about 20 billion riyals ($5.3 billion) in the form of time deposits on behalf of government entities.

Brent crude declined 2.9 percent as of 3:37 p.m. in London to $45.99 a barrel. Oil extended declines as Iran said it’s unwilling to freeze output at current levels and wants to raise production, damping expectations for OPEC to reach a deal to stabilize markets when the group meets Wednesday in Algiers.

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