Saudi Stocks Enter Bull Market as Banks’ Cash Squeeze Abates

  • Tadawul All Share Index had entered a bear market in October
  • Al Rajhi Bank gains every session since sovereign bond sale

Saudi Arabian stocks extended their winning streak to six days, entering a bull market as investors bet the government’s belated payments to contractors would help spur more gains.

The Tadawul All Share Index added 2.3 percent to the highest level since July, taking its rally this week to 7.7 percent. The gauge has advanced more than 20 percent since a recent low on Oct. 3, crossing the threshold for a so-called bull market. Al Rajhi Bank, one of the biggest contributors to the increase, clocked up a record 19th day rising as the amount banks charge to lend to one another fell for a 10th straight day.

The kingdom said earlier this week it would settle payments owed to private companies before the end of 2016, adding fuel to a rebound sparked by the largest ever international bond sale from an emerging nation. The injection of cash from the bond and government payments is easing a liquidity crunch that drove bank borrowing costs to the highest in seven years.

“Investors are focusing on local fundamentals more than anything else, and things now are clearly improving,” said Mohammed Alsuwayed, the Riyadh-based head of capital and money markets at Adeem Capital. “Contractors are being paid, liquidity among banks is not a big concern anymore. Local investors just see this as a good moment to get back to the market after so much pain earlier this year.”

Cash Squeeze

The world’s biggest oil exporter delayed payments to contractors last year as it sought to rein in a budget deficit that reached about 15 percent of economic output. With oil trading at less than half 2014 levels, authorities also rolled out a package of austerity measures, including cuts to public-sector wages, which compounded a stock plunge in the third quarter.

The government raised 94 billion riyals ($25 billion) from the sale of bonds to local banks and institutions in the first eight months of the year, driving the three-month Saudi Interbank Offered Rate, a benchmark used to price loans, to the highest since 2009. Saibor, as the rate is known, fell 1.1 basis points to 2.201 percent, the lowest since June 13, according to data compiled by Bloomberg.

Al Rajhi Bank, which has the biggest weight on the benchmark index, rose 1.7 percent, taking its 19-day increase to 23 percent. An index comprising 12 lenders in the country advanced 2.2 percent, with all but one of its members gaining.

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