Saudi Arabia: Stock Market Drops 7% On Low Oil Prices, Fitch Ratings

By Khalil Hanware

The Saudi stock market plunged nearly 7 percent on Sunday in relentless selling sparked by falling oil prices and a decision by Fitch Ratings to cut its outlook for Saudi Arabia’s debt.

The Tadawul All-Share Index lost 6.86 percent to close at 7,463.32 points, nearing support on its December low of 7,226 points.

That brought its losses so far in August to 18 percent — a drop that has erased some $75 billion of market value, Reuters reported.

Mohamed Ramady, professor of finance and economics at King Fahd University of Petroleum and Minerals, said: “Unfortunately the Tadawul will continue to be lethargic and might close at around the 6,800-7,000 levels by year end if oil prices do not modestly rebound and signs of a Chinese recovery are seen.

Commenting on Tadawul’s drop, Akber Naqvi, executive director at Al-Masah Capital Management Ltd., told Arab News: “It is important now to see how Tadawul trades around its December 2014 lows as that would be seen as a level of support.” However, he said: “At this stage it is more important to see where oil will find a bottom because that will directly determine Tadawul’s next trading range.”

Despite a fall in the Kingdom’s all-important petrochemicals industry, the real estate, industrial investment, insurance and banking sectors, the value of traded shares exceeded SR6.6 billion on Sunday.

Basil Al-Ghalayini, CEO of BMG Financial Group, said: “The Saudi stocks prices fall do not necessarily reflect the fundamentals of the underlying companies. Obviously, there is a panic among short-term traders who are influenced by frenzy updates via social media channels. Although, the oil price fall has triggered Saudi budget deficit, this is a normal development of any business cycle of any economy.”

According to Bloomberg, more than $3.3 trillion has been erased from the value of global equities since China’s Aug. 11 decision to devalue its currency spurred a wave of selling across emerging markets.

Dubai stocks sank 7 percent to 3,451 points, its lowest close since March 30, bringing their loss since 2015’s peak to 18 percent.

“The Saudi market is clearly affected by the renewed weakness in oil. This in turn is the result of an increase in general risk aversion, which is boosting the dollar, and the increasing concern about China’s economic outlook,” a regional economist, based in Bahrain, said.

He said: “The markets are looking for new policy cues globally, in particular more dovish tones from the Fed and new steps by the Chinese authorities to restore market confidence.