Tadawul index sinks 4.5% to lowest since December 2011

Updated 07 January 2016

Tadawul index sinks 4.5% to lowest since December 2011

JEDDAH: Gulf stock markets fell sharply on Thursday, with Saudi Arabia plunging more than 4 percent and other major markets losing at least 3 percent, because of a fresh slide of oil prices and worries about the health of the regional and global economies.
Brent oil sank more than 4 percent to below $33 a barrel for the first time since April 2004.
Saudi Arabia’s 2016 state budget, released last week, projected a $87 billion deficit — assuming oil averaging about $40.
The Saudi Tadawul All-Share Index sank 4.5 percent, its biggest daily drop since August, to close at 6,225 points, its lowest finish since December 2011. It closed within just 35 points of the day’s low.
Only three out of 166 traded Saudi stocks rose.
Second-tier banks were hit particularly hard on concern about an economic slowdown; Al-Jazira Bank dropped 5.8 percent.
United Electronics, a popular play on Saudi consumer demand, plunged 9.4 percent.
Heavily weighted petrochemical stocks sagged as cheap oil will erode producers’ margins, and because of worries about demand in China.
Also, the Saudi state budget sought to save money by hiking natural gas feedstock prices for the industry.
Blue chip Saudi Basic Industries Corp. lost 3.2 percent and the sector’s index sank 3.3 percent.
“The multi-year low oil prices, weak demand in key markets and the recent change in feedstock prices are expected to significantly impact the sector’s profitability in 2016,” analysts at NCB Capital said in a note.
They estimated the sector’s net income would fall 13.6 percent this year, with gross profit margins hit by between 2 and 8 percentage points. They also said the profit fall could be more severe if China’s economy weakened or oil prices averaged less than $52 a barrel this year.
Advanced Petrochemical rose 1.2 percent, however, after NCB Capital upgraded it to “overweight” from “neutral,” citing a favorable feedstock mix, its operating efficiency and an attractive dividend yield.
Analysts at Al Jazira Capital said Advanced Petrochemical, which uses liquid gas feedstock, would outperform producers using ethane as feedstock; the domestic price of ethane rose to $1.75 per million British thermal units from 75 US cents in the state budget.
The seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index, published on Thursday, showed growth in the non-oil private sector falling to its slowest pace in December since the survey was launched in August 2009.
The slowdown appears to have been caused by a cut-back in Saudi state spending late last year. The 2016 budget contained more cuts, and additional austerity steps could be taken if oil continues falling.
“We suspect that this is probably just a sign of things to come,” London-based Capital Economics said in a report on the Saudi PMI, predicting that a fiscal squeeze would reduce growth further this year.
Economies and governments in the UAE and Qatar, which have stronger state finances, look better placed to cope with an era of low oil prices. But their markets were caught up in the sell-off too, as weakness in Saudi Arabia could have an impact throughout the region.
The Emirates NBD UAE Purchasing Managers’ Index for December, published on Thursday, showed business activity growth in the UAE slowing to a 40-month low.
Dubai’s index tumbled 3.4 percent in an almost indiscriminate sell-off; blue chip Emaar Properties sank 5.4 percent.
Telecommunications firm du was bought as a defensive stock, however, rising 0.6 percent.
Abu Dhabi dropped 3.2 percent in a broad sell-off.
Qatar lost 3.0 percent; drilling rig provider Gulf International Services, the most heavily traded stock, tumbled 6.3 percent.
Egypt’s market was closed on Thursday for a holiday.


Finance shake-up with Saudi derivatives market to launch in Q3

Updated 10 July 2020

Finance shake-up with Saudi derivatives market to launch in Q3

  • Launch of futures contracts to be made before the end of the third quarter of this year

RIYADH: Saudi Arabia’s Capital Market Authority (CMA) plans to launch a derivatives exchange in the latest move to modernize the Kingdom’s financial landscape.

An announcement about the launch of futures contracts will be made before the end of the third quarter of this year, Asharq Al-Awsat newspaper reported, citing CMA Chairman Mohammed El-Kuwaiz.

“We are in the phase of developing the derivatives market with intensive work on the options contracts and the futures contracts” he said.

He was speaking in an online discussion panel organized by the General Authority for Small and Medium Enterprises (Monshaat).

The markets chief said that the impact of the coronavirus on the market would be more visible in second quarter earnings and that the regulator was working on easing some of its procedures in response.

Tadawul is planning to launch additional derivative products gradually as part of its strategy to diversify its product offering and provide more investment opportunities for global investors.

Separately, Tadawul CEO Khalid Al-Hussan disclosed that the bourse has received a number of requests for new share offerings that are currently being reviewed. He said three companies had been approved to list on the parallel market known as “Nomu.”

 

 

Decoder

Derivative

A derivative is a financial instrument that acts as contract between two or more parties whose value is based on an agreed-upon underlying asset such as a stock or a bond.