JEDDAH: Saudi Arabian stocks fell sharply yesterday, tracking a slump in world markets, as investors worried that an oil price plunge and possible global recession would hit the growth of firms in the Kingdom.
The benchmark Tadawul-All Share Index (TASI) closed 8.70 percent lower at 5,624.68 points, a day after bourses around the world plummeted as investors, fearing a long and deep worldwide recession, dumped risky assets.
The index has fallen more than 49.05 percent so far this year and is the worst-performing measure in the Gulf Arab region after Dubai.
Saudi investors were also reacting to the near $4 drop in oil prices on Friday that happened despite an agreement by the Organization of Petroleum Exporting Countries (OPEC) to cut crude output by 1.5 million barrels a day, analysts said. Crude prices have dropped by more than half since hitting record levels above $147 a barrel in July. “The OPEC cut did not have any positive effect on oil prices and everybody is so depressed,” said Abdullah Al-Rashoud, chief executive at Riyadh-based KSB Capital Group.
“There is a lot of feeling that there is no hope — that the global economy is going into recession,” Rashoud said.
Six other stock markets in the region are closed on Saturdays.
Reacting to the stock market crash, Saleh Abdullah Kamel, president of Islamic Chamber of Commerce and Industry, said, “I hope the market should not go below this. The ideal range for the index should be around 7,000 points which is reasonable. Anything above is not realistic.”
He advised Saudi investors that they should use their money in real investments. They should invest in new development projects which are aplenty in the Kingdom and also in new factories where risks will be minimal. “That will be the real investment and not the stock market where risks abound,” Kamel said.
The petrochemical and banking stocks led the sell-off, with Saudi Basic Industries Corp. (SABIC) — the largest stock — shedding 9.78 percent to SR73.75.
SABIC’s fair value could be downgraded to about SR60 if global petrochemical prices fall on a slowdown in demand for chemicals, Rashoud said.
SABIC reported its first decline in quarterly profit in more than two years in the third quarter on a slowdown in sales growth. Banks in the Gulf region were also likely to witness profit declines related to the global credit crisis, which has raised the cost and reduced the availability of funding, analysts added.
Al-Rajhi Bank, Saudi Arabia’s biggest bank by market value, tumbled 9.76 percent and Riyad Bank lost 10 percent.
Dar Al-Arkan Real Estate Development Co. closed 9.96 percent lower after the Kingdom’s largest developer by market value posted a third-quarter profit rise of SR720 million, up 4.3 percent from the year-earlier period.
“The main reason of fall in the stock prices in some extent is impact on the earnings of the companies,” Mohammed Tariq, treasurer and head of investments, at the Jeddah-based Islamic Development Bank (IDB) said.
He added that in Saudi stock market there are high networth investors who are investing abroad as well. Because of the global correction, lot of investors from Saudi Arabia lost their money in other world markets.”
Tariq also said mutual funds redemptions could have been a cause of stock market fall but data has to be checked.
— With input from agencies
