Saudi Stocks Rise as Oil Output Cut Outweighs 9/11 Legislation

  • Tadawul advances after OPEC agrees first cut in eight years
  • Gains come despite U.S. congress overriding veto on 9/11 bill

U.S. Bill Impacts Saudi Bond Sale

Saudi Arabian stocks climbed from the lowest level in eight months after an OPEC deal to cut oil production helped investors look past concern over possible legal action against the kingdom for alleged involvement in the Sept. 11 attacks.

The Tadawul All Share Index, which rose and fell at least 0.8 percent in the first 30 minutes of trading, gained 1.6 percent, the most in more than three weeks and the steepest advance in the Middle East and North Africa. Al Rajhi Bank and Saudi Basic Industries Corp., which together account for one-fifth of the gauge, were the biggest contributors to the increase. Traders exchanged 265 million shares, 68 percent above the gauge’s 30-day average.

Oil, Saudi Arabia’s main source of income, advanced the most since April on Wednesday after members of the Organization of Petroleum Exporting Countries agreed to cut production. The kingdom’s decision to join the deal was necessitated by its tattered finances, which prompted the government to announce a reduction to state employees’ wages and bonuses on Monday, triggering a stock rout. The kingdom is grappling with a budget shortfall that ballooned to the widest since 1991 last year.

Meanwhile, the U.S. Senate voted to override President Barack Obama’s veto of a bill allowing the kingdom to be sued for its alleged links to the Sept. 11 attacks. The move threatened to delay Saudi Arabia’s plan to sell its first international bonds.

“There’s so much to consider today,” Tariq Qaqish, the Dubai-based head of asset management at Al Mal Capital PSC, which has been snapping up bargains because valuations have fallen too low, said before the market opened. “The deal to cut oil production is positive, but you also have to consider the impact of the 9/11 case. We expect government-related funds to intervene to help calm the market down.”

Bond Delay

About three-fourths of the stock gauge’s 174 members rose. Al Rajhi Bank gained 3.9 percent after sinking the most in more than a year on Wednesday and state-controlled petrochemical producer Saudi Basic Industries Corp. climbed 4 percent from the lowest level since April.

Saudi Arabia can take the financial hit if it’s sued, “but if the amount is big, then it might lead to negative publicity and scare some investors,” Qaqish said. “If the bond sale is delayed, then that is going to hurt those corporates that have been waiting for payments by the government. More delays in the bond offering means that some companies will have difficulty meeting their obligations.”

Twelve-month Saudi riyal forward contracts, which some investors use to bet whether the government will allow its currency to depreciate, rose 50 points 3:35 p.m. in Riyadh to 625 basis points, the highest level in almost two months, according to prices compiled by Bloomberg.

Indicators

The Tadawul sank 7.1 percent in a two-day selloff this week, ending the trading session on Wednesday with 50 percent of its members recording new 52-week lows, the most since January. Its 14-day relative strength index declined to 23, well past the level that signals it may be oversold. The measure also fell below its lower Bollinger band, according to data compiled by Bloomberg, a sign to some analysts it’s due an increase.

“Saudi equity investors will have to grapple with the uncertainty of whether the near-term pain of potentially lower Saudi oil exports pays off in the medium-term with higher global oil prices,” said Hasnain Malik, the Dubai-based head of frontier markets strategy at Exotix Partners LLP. “The U.S. Senate vote is another signal that U.S.-Saudi relations are changing. The potential negative financial impact of this specific piece of legislation look long-dated and by no means certain.”

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