Saudi Stocks Are Back in Grip of Bear Market as Austerity Bites

  • Tadawul trading at the lowest level in more than five years
  • Lenders ordered to reschedule loans following cut to salaries

This is shaping up to be the worst year for Saudi stocks since the financial crisis.

The kingdom’s benchmark equity gauge declined as much as 2.2 percent on Monday, moving deeper into its second bear market of the year and extending the worst selloff in the six-nation Gulf Cooperation Council. The Tadawul All Share Index, which fell to the lowest level since 2011 on Sunday, has lost about $30 billion since the nation last week announced a series of cuts to government salaries and bonuses as part of effort to slash spending.

The volatility of Saudi stocks has jumped.

Bloomberg

The central bank on Sunday directed local lenders to reschedule the consumer loans of clients affected by last week’s decision to scrap the bonuses and allowances of many state employees. Saudi stocks are on course for their worst year since 2008 as the government grapples with a budget shortfall that ballooned to the widest in more than two decades last year amid the slump in oil prices.

“Clearly the sentiment is deteriorating, with the vast majority of traders still digesting the consequences of the austerity measures announced last week,” said Mohammed Al-Omran, the chief executive officer of Riyadh-based Amac Investments and president of the Gulf Center for Financial Consultancy. “They will have a direct impact on growth prospects for companies, and we see a continuation of that pessimism impacting stock prices. It is hard to tell at this moment when sentiment will improve again.”

‘Reduce Pressure’

The Tadawul declined 0.6 percent in Riyadh on Monday. Jabal Omar Development Co. was the biggest contributor to the slide, falling 5.5 percent, followed by Al Rajhi Bank’s 1.6 percent drop.

The Saudi Arabian Monetary Agency, as the kingdom’s central bank is known, said in a statement late on Sunday that directing local banks to reschedule loans was part of efforts to “reduce pressure on borrowers” whose income was cut by the spending cuts announced last week. The index tracking bank stocks lost 0.6 percent, closing at the lowest level since 2009 for the second day.

Clothing retailer Fawaz Abdulaziz Al Hokair & Co. fell 7.5 percent. The Riyadh-based company, which operates more than 2,100 stores representing more than 80 international brands, according to its website, has dropped in all but one of the five sessions since the announcement.

Saudi Arabia’s gauge is the worst performing major index globally since the austerity measures were disclosed, and its 10-day volatility surged to the highest in the world. On Sunday it closed 21 percent below a recent peak in April, crossing the threshold for a so-called bear market. The index that tracks building and construction companies sank to a record low on Sunday, and the cement stock gauge retreated to the lowest level since 2009.

Supermarket and commercial wholesale operator Abdullah Al Othaim Markets Co. rose 4.1 percent on Monday, recovering from the lowest level in more than seven months. Dar Al Arkan Real Estate Development Co. added 3.8 percent and Saudi Kayan Petrochemical Co. advanced 3.7 percent.

“There are many stocks that have value and that are trading with a discount now, they’re attracting buyers,” said Amac’s Al-Omran. “When you look at them and consider fundamentals, there are opportunities.”

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