World Economy

Saudi Stocks Plunge to Multi-Year Lows

Many blue-chip petrochemical and banking stocks outperformed on Sunday.Many blue-chip petrochemical and banking stocks outperformed on Sunday.

Saudi Arabia’s stock market plunged to its lowest close since March 2011 on Sunday because of fears the government could introduce more austerity measures to curb a big budget deficit caused by low oil prices.

The Saudi index edged up in early trade but fell steadily through the afternoon to close 3.1% lower at 5,448 points in thin trade, Reuters reported.

Global stock markets ended last week on a firm note while Brent oil for November delivery settled above $49 a barrel in response to last week’s deal by OPEC crude producers to cut output.

But many analysts are uncertain whether the OPEC deal will be implemented effectively or result in any extended rise of oil prices.

And after the Saudi government said last week that it was reducing allowances for public sector employees—a major blow because many Saudis rely for up to 30% of their income on such allowances—the main factor for the stock market is the damage to economic growth from austerity steps.

“I expect more pressure in the market. With the approach of quarterly results announcements, people are basing their positions on what is to come, as more risks are expected in the market towards the end of the year and through the first quarter of 2017,” said Abdulhamid al-Ameri, a prominent Saudi economist.

Some investors think additional austerity steps—perhaps new fees or taxes on the kingdom’s large workforce of foreigners—could be approved as early as a weekly cabinet meeting on Monday.

A monthly Reuters poll, published on Thursday, found Middle East fund managers had turned negative on balance towards Saudi Arabian equities for the next three months because of the austerity policies.

 Stocks Outperform

Miner Ma’aden sank 4.6% on Sunday while travel agent Al Tayyar, exposed to weakening private consumption, dropped 6.8%.

Many blue-chip petrochemical and banking stocks outperformed, with Saudi Basic Industries down only 0.6%. But National Petrochemical tumbled 9.8% after saying a subsidiary would halt operations for 60 days because of maintenance and that the financial impact was not yet known.

“Today the worst-hit sectors are the ones related directly to the local market and consumer spending—retail, electricity, cement and even media, which hit limit-down,” said Ameri.

Government data released on Friday showed Saudi Arabia’s gross domestic product, adjusted for inflation, rose 1.4% from a year earlier in the second quarter of 2016, after growth of 1.5% in the first quarter.

Many analysts think the growth figures understate the blow from low oil prices and may eventually be revised lower, as Saudi GDP data has been in the past.

One major sector was off-limits to Saudi investors on Sunday: telecommunications.

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