Saudi index makes largest decline in seven weeks

UPDATE 4: Bourse tracks stuttering world markets and oil price.
Saudi index makes largest decline in seven weeks
STOCK WATCH: Shuaa Capital reported a loss of AED56.6m ($15.4m) in the second quarter from a AED91.7m net profit a year ago. (Getty Images)
By Reuters
Wed 11 Aug 2010 10:52 AM

Saudi Arabia's index made its largest decline in seven weeks and further losses are forecast as the kingdom's bourse tracked stuttering world markets and oil.

Saudi Basic Industries Corp (SABIC) fell 1.7 percent, slipping to a three-week low, Al-Rajhi Bank dipped 1.3 percent and Samba Financial Group lost 2.1 percent.

Jouf Cement ended at 12.45 riyals on its debut.

The index fell 1.2 percent to 6,188 points, its largest decline since June 29.

"In the short-term, the market appears to be heading lower towards 6,000 points," said Youssef Kassantini, an independent financial analyst.

The index has broken below the 50 day weighted moving average at 6,224 points, Kassantini said, with the next support at 6,068. This was the bottom of a July correction, while 6,000 points will be an important psychological prop.

"In the next two months, Saudi will be related to the international situation and I think U.S. markets will continue to correct - U.S. markets are not attractive because they are overbought," added Kassantini.

"U.S. earnings have supported the Dow, together with a lack of negative news, but if bad news returns it should break below 10,000."

Futures contracts indicate the Dow Jones industrial average will open 1.1 percent lower 10,485 points as the Federal Reserve's gloomier assessment of the economy rattled investors and the central bank's measures to support the fragile recovery failed to reassure world markets.

Oil fell below $80 on Wednesday, as a report from the International Energy Agency (IEA) warned of risks to demand.

Dubai's Shuaa Capital slumped to a 16-month closing low after the investment bank posted a second-quarter loss, while the emirate's index DFM declined for a third day in four.

Shuaa fell 4.6 percent to its lowest level since April 2, 2009 after reporting a quarterly loss of $15.4m.

Emaar Properties fell 2.2 percent and Union Properties dropped 2.4 percent.

The index dipped 0.9 percent to 1,483 points, a five-week low.

"Fundamentals aren't screaming out for a floor in the market," said Zahed Chowdhury of Al Mal Capital.

"In Abu Dhabi, there are issues surrounding Aldar and Tabreed and Dubai's issues are well known, with a contagion from construction and real estate affecting banks and financial companies.

"You can argue we've reached a trough in terms of asset values, but bank loan growth hasn't been positive enough and the shape of a recovery doesn't seem to be steep. If anything, we're looking at flat growth for the rest of the year."

Tabreed, which is based in Abu Dhabi but listed in Dubai fell 2.1 percent. The firm's recapitalisation plan and support from its largest shareholder will ensure continued operations, analysts said, after an auditors report on Tuesday cast doubt over the company's future.

Abu Dhabi's Aldar Properties fell 1.9 percent, nearing an 18-month low on worries over the developer's debt position. Aldar reported a quarterly loss of $129m, much worse than forecast.

Abu Dhabi's index ADI fell 0.5 percent to 2,496 points, its lowest finish since Dec. 9, 2009.

Zain slipped from the previous day's 11-week high as Kuwait's index KWSE ended lower, with few catalysts to attract investors.

Zain fell 1.6 percent, giving back Tuesday's earnings-driven gains.

The operator reported a $2.95bn quarterly profit following its sale of African assets, but questions remain over its long-term strategy, with the firm's footprint largely confined to the Middle East, plus Sudan.

"Revenues are higher in the Middle East, but these are mature markets compared to Africa and so don't offer the same growth as Africa," said Irfan Ellam, Al Mal Capital telecoms analyst.

"People are focusing on the dividend payouts for this year and next, but they should be asking where Zain's growth will now come from."

Market talk persisted over a possible stake sale by shareholder the Kharafi group.

"Zain looks fully priced at current levels, but if there is any M&A activity, as some people are talking about, then the stock could rise," added Ellam.

Kuwait's index fell 0.4 percent to 6,674 points, easing from Tuesday's two-month high.

Qatar's index QSI ended lower for a first day in three, tracking declines on regional and world markets amid fresh worries over the global economy.

Commercial Bank of Qatar fell 1 and Qatar Islamic Bank dipped 0.5 percent, with lenders little moved by the central bank cutting its overnight deposit rate by 50 basis points.

"I don't think this move means that much in terms of the cost of funding for Qatar commercial banks," said Zahed Chowdhury of Al Mal Capital.

"We've seen in the UAE that some banks have moved away from central bank or EIBOR overnight rates because these don't reflect their funding costs and the same applies in Qatar as well.

"There's no bond market in this region or much in the way of commercial paper."

The index fell 0.3 percent to 7,104 points. (Reuters)

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