Saudi stocks gain strength despite oil volatility

Recent analysis by the special investigation unit at Al-Eqtisadiah newspaper found out a direct correlation between movements of Saudi stock market and oil prices (OPEC Reference Basket), a coordinated move over relation since the outbreak of the global financial crises in 2008.
The analysis showed a disconnection in this coordinated move since early 2013 to June 25 this year. Oil prices fell by 7 percent, to $ 99.8 per barrel, from $ 107.8 late 2012, while Saudi stocks moved up by 11 percent, from 6,801 points to 7,517 points at the end the same year.
It is only rational that Saudi stock market moves with oil prices since the country's economy heavily depends on oil for revenues, more than 90 percent of its national income.
Meanwhile, the Dow Jones Industrial Average rose 13 percent, from 13,104 points to 14,760 points.
Gold prices sharply declined after the record spikes that it recorded since the financial crisis of 2008, by 24 percent, the largest such decline on records, to $ 1,283 per ounce compared to $ 1,675 per ounce at the end of last year. Gold prices closed at $ 1,232 per ounce on June 28, falling by 26 percent since the beginning of the year.
Ministry of Finance estimated that this year Saudi national income will amount to SR 1.24 trillion of which 92 percent are oil revenues.
However, since the financial crisis of 2008, the analysis showed an inverse relationship between gold prices and the Saudi stock market movements; Saudi stocks declined when gold prices rose by 58 percent, to $ 1,274 an ounce during the same period.
It is natural that a "counterproductive" relationship exists between gold prices and stocks, since investors turn to gold as a safe haven during crises and times of high risks and the fact that gold is considered value stock.
With regard to the relation between Saudi stock market and the Dow Jones Industrial Average index, the analysis showed a paradox of relation between the two indexes; Dow Jones index rose by 27 percent while the Saudi index fell 13 percent up to June 25.
It is surprising that Dow Jones rose in view of the spikes of gold prices, as this is not the case with the relationship between stocks and gold in such difficult economic times.
Looking back at August 2008, oil prices (OPEC Reference Basket) declined 71 percent, from $ 121 to $ 35.6. During the same period, Saudi stocks fell by 44 percent, from 8,634 points to 4,803 point toward the end of the year. While Dow Jones declined by 23 percent, gold prices by 3 percent.
In 2009, all indexes rose great percentages, expect the phenomenal year of 2008.
Oil prices rose by 177 percent until the end of 2009, the same was true for the Saudi stocks, which rose by 27 percent. Meanwhile, Dow Jones rose by 19 percent for the same period and gold prices by 24 percent to $ 1,095.
Indexes started to fall back in 2010, the percentages of its upward trend contracted after the record spikes in 2009. Oil prices rose by only 15 percent, to $ 99, with the coordinated move of Saudi stocks of 8 percent rise.
During the same period, 2010, Dow Jones rose by 11 percent, to 11,578 points; gold prices recorded a rise of 30 percent to $ 1,421.
But data showed variation of the indexes in 2011, where oil prices rose by 20 percent to $ 106.8, against a decline of Saudi stocks by 3 percent.
Dow Jones rose as well by 6 percent to 12,218 points, accompanied by the same coordinated move in gold prices by 10 percent.
In 2012, oil prices rose slightly by 1 percent, to $ 107.8 per barrel, while Saudi stocks rose 6 percent, to 6,801 points at the end of the year. The Dow Jones index rose by 7 percent, while gold prices rose by 7 percent, to $ 1,675.