World turmoil weighs on Saudi bourse

Saudi Arabia’s bourse, the largest in the Middle East, has remained under the pressure of global economic turmoil caused by the US credit downgrade and Europe’s debt crisis although oil prices have remained relatively strong.

Early this year, the Saudi equity market managed to overcome domestic political unrest recovering from a 19.6 per cent plunge, National Commercial Bank (NCB) said in a study sent to 'Emirates 24|7'.

Since then, stock prices climbed in the midst of huge Saudi government spending plans and strong corporate performances, it said.Stocks remain relatively cheap according to their fair valuation and historical norms as Tadawul bourse hovered around 0-2 per cent gains so far this year.

However, with recent global turmoil hindering the outlook of many economies, stocks have been restrained from gaining any further and, in fact, dropped to the negative territory, said NCB, Saudi Arabia’s largest bank.

“The European debt saga has been weighing heavily in addition to the more recent US debt ceiling debate. The latter triggered a downgrade to US’s credit rating by S&P and keeping its outlook as negative which dragged stocks even further,” NCB said in its weekly market review.

Its figures showed Tadawul reached 6039.32 last week, posting an 8.8 per cent decrease thus far in 2011.

The report showed the index fell below the 6000 level and reached 5795.44 before ending Tuesday’s session at 6008.67. “Considering Saudi stocks’ impressive profitability in the first half of this year, coupled with a robust economy, price projections are on the upside,” it said.

“Nonetheless, investors seem easily swayed by external shocks that have caused distress in many equity markets worldwide. With limited local economicindicators, investors are in anticipation of positive global news to gain back their confidence in the riskier assets.”According to the Abu Dhabi-based Arab Monetary Fund, which tracks Arab stock exchanges, Saudi Arabia’s bourse was the main victim of regional market downturn this month following the US credit downgrade.

It showed Tadawul’s market capitalization dipped by around $11 billion in the first half of August from $337 billion on July 31 to $326 billion on August 15. The drop accounts for nearly 43 per cent of the total Arab market fall of $25 billion.

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