Saudi Stocks Tumble as Fading Oil Deal Adds to Budget Pessimism

  • Tadawul All Share Index fell to the lowest level since January
  • Al Rajhi Bank and Sabic are the biggest contributors to loss

Saudi Arabian stocks lost the most in the world for a second straight day amid waning hopes for an oil-production deal that may buoy up the nation’s finances. Contracts used to bet whether the kingdom will allow a weakening of its currency rose.

The Tadawul All Share Index, the worst performer among more than 90 gauges tracked by Bloomberg, sank 3.4 percent to close at the lowest level in more than eight months. Al Rajhi Bank and Saudi Basic Industries Corp., which together account for about 20 percent of the measure, were the biggest contributors to the retreat. The country’s equities traded at their cheapest level relative to emerging-market peers since at least March 2008. Twelve-month forward contracts on the riyal climbed the most since May on a closing basis.

The latest sell-off, which began Monday after Saudi Arabia announced it will curb state employees’ allowances and cancel bonus payments, underlines concern over how the kingdom is coping with oil prices below $50 a barrel. Waning hopes for a deal at OPEC talks in Algiers this week worsened the rout, sending the main stock gauge within 1 percent of a bear market on Wednesday. This year’s decline, the worst across the Middle East and North Africa, may complicate the exchange’s plan to encourage more companies to sell shares in initial public offerings, and to double the market’s size in seven years.

“Adding to the news from the Saudi government this week is all the pessimism regarding a potential agreement in Algiers,” said Saleem Khokhar, the Abu Dhabi-based head of fund management and equities at the asset-management group of National Bank of Abu Dhabi PJSC. “It’s a bad combination. Many stocks are trading at very attractive levels right now, but investors are still concerned about the impact” of the government measures, he said.

Monthly Drop

The Tadawul is headed for its worst month since January, when the price of Brent crude tumbled to the lowest level in more than 12 years. The gauge has dropped 9 percent in September, the most among major global indexes.

The kingdom, which relies on income from crude to fund expenditure, is grappling with a budget shortfall that ballooned to the widest since 1991 last year after oil prices fell. Saudi Arabia and Iran have yet to agree with other Organization of Petroleum Exporting Countries on the group’s production targets. The countries started the meeting on Wednesday looking to close a gap of 600,000 barrels a day between their respective positions.

The stakes remain high as the International Energy Agency predicts a worsening oil market if OPEC doesn’t act.

Saudi Arabia’s index traded at 10.8 times its members’ estimated future earnings, the lowest level in more than seven months, compared with 12.5 times for the MSCI Emerging Markets Index. Al Rajhi Bank retreated 5.6 percent, the steepest loss since August 2015, and Saudi Basic Industries Corp. fell 4.5 percent to the lowest level since April.

“The Saudi market remains dominated by retail investors, and they’re panic selling," said Tariq Qaqish, the Dubai-based head of asset management at Al Mal Capital PSC. "They’re reacting to the new normal of slower growth and tighter budgets.”

Forwards Rise

Twelve-month Saudi riyal forwards rose 15 percent as of 2:09 p.m. in London to 558 basis points, implying a 1.5 percent drop to 3.8092 per dollar, according to prices compiled by Bloomberg. While the riyal, which is pegged to the dollar and trades within a currency band, depreciated less than 0.1 percent, the drop was the most since January on a closing basis.

Saudi Arabia, which is seeking to raise at least $10 billion from its first international bond sale, may delay the offering because of a U.S. vote on legislation that would allow the families of 9/11 victims to sue the Arab country, according to people with knowledge of the matter.

“A combination of austerity measures, news on delays of the issuance of the government’s bonds and weakening of the riyal’s spot price has caused negative sentiment among investors,” Qaqish said.

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