Saudi Stocks Lead Gulf Retreat on Weaker-Than-Expected Earnings

  • Saudi Arabia’s NCB misses median of analysts’ profit forecasts
  • All major equity indexes across six-nation GCC decline

Saudi Arabian stocks led Gulf markets lower after the nation’s biggest publicly traded bank became the latest in a growing list of companies whose earnings missed analysts’ forecasts.

The Tadawul All Share Index lost 1.1 percent in Riyadh on Sunday, ending the longest rising streak since August. National Commercial Bank, whose third-quarter profit of 1.96 billion riyals ($522 million) was about 360 million riyals shy of the median forecast of four analysts, was the biggest contributor to the drop. The Bloomberg GCC 200 Index, a measure of the largest and most liquid stocks across the six-nation Gulf Cooperation Council, declined 0.5 percent as every major equity gauge in the region sank.

Gulf stocks are poised to fall for a second year, the longest streak since the BGCC index started about a decade ago, after a slump in oil prices curbed government spending across the region and weighed on corporate income. Out of the seven banks that reported earnings for the third quarter in Saudi Arabia, the world’s biggest crude exporter, one posted an increase in profit.

“Investors are now focusing on corporate earnings to decide on trading, and prospects are not good,” said Mohamad Al Hajj, a Dubai-based equity strategist for the Middle East and North Africa at EFG-Hermes U.A.E. Ltd. “The big question for investors now is when shares will bottom out, and we don’t believe it will happen in this quarter.”

Saudi Banks

NCB dropped 5.5 percent, the most since January, to 33.94 riyals. The Tadawul All Share Banking Index retreated 1.6 percent. The gauge’s price-to-book ratio declined to 1.0162 last week, the lowest level since Bloomberg started tracking the data in 2006.

Dubai’s DFM General Index dropped 1 percent, led by Emaar Properties PJSC’s 1.5 percent slide. Abu Dhabi’s ADX General Index ended 0.7 percent lower, Kuwait’s SE Price Index fell 0.4 percent and Bahrain’s Bourse All Share Index lost 0.3 percent. Oman’s MSM30 Index and Qatar’s QE Index each slipped 0.2 percent.

Volumes in all but one of the region’s benchmark stock gauges were below their 30-day averages.

Trading on the MSM30 Index was 60 percent above the 30-day average as the number of shares exchanged exceeded 15 million. More than 40 percent of the trades were in Bank Nizwa, which rose 3.8 percent after posting preliminary financial results.

Merger talks between Omani lenders Bank Sohar and Bank Dhofar to create an institution with assets of $16 billion have collapsed, the latter said in a statement to the Muscat stock exchange on Sunday after market close.

Egypt Declines

Egypt’s EGX 30 Index reversed gains of as much as 1.3 percent to drop 0.9 percent at the close. Commercial International Bank Egypt’s 1.3 percent loss was the biggest contributor to the decline.

The gauge advanced to the highest level since June last week amid speculation the government is preparing to weaken the Egyptian pound to secure an International Monetary Fund loan. The index traded at 9.8 times expected earnings on Thursday, the highest level in a year, according to data compiled by Bloomberg.

Egypt has received a $2 billion deposit from Saudi Arabia, a central bank official said Oct. 12, paving the way for the $12 billion IMF loan. The country is “getting closer” to concluding the deal, Prime Minister Sherif Ismail said last week, without giving details. The nation’s $1.5 billion bonds due June 2025 fell for eight straight days through Friday, the longest losing streak since May.

“The market has become focused on a single issue: the IMF agreement,” said Hesham Wafa, a Cairo-based institutional sales trader at Mubasher Trade. “The more signals we get that it’s on track, the higher the market will trade because investors are betting on foreign direct investment inflows that could be transformative for Egypt.”

Markets in Israel are closed due to a public holiday.

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