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Sun 7 Aug 2011 07:26 AM

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Saudi shares plunge as US downgrade fuels fear

Sabic leads fall of all 15 industry groups as index sees largest intraday drop since March

Saudi shares plunge as US downgrade fuels fear
All 15 industry groups fell amid concerns about the global economy after the USs credit rating was cut
Saudi shares plunge as US downgrade fuels fear
US President Barack Obama

Saudi Arabian shares tumbled for a third day, sending the
benchmark index to its largest intraday drop since March, amid rising concerns
about the global economy after Standard & Poor’s cut the US’s credit rating
for the first time.

Saudi Basic Industries Corp, or Sabic, the world’s biggest
petrochemicals maker, fell the most in five months. Al Rajhi Bank, the
kingdom’s largest publicly traded lender by market value, reached its lowest
price since March.

The 147-company Tadawul All Share Index slumped 5.5 percent
to 6,073.44, the steepest decline since March 1, at the 3:30 pm close in
Riyadh. All 15 industry groups fell. The gauge has fallen 10.5 percent from the
year-high of 6,788.42 on Jan. 16.

“The Saudi market is reacting to the steep declines in
global markets over the weekend,” said Asim Bukhtiar, an equity analyst at
Riyad Capital. “Growing concerns of the US relapsing into recession are driving

US stocks fell the most in 32 months this week and European
stocks posted their biggest weekly loss since November 2008. The S&P 500
slumped 7.2 percent, the biggest weekly drop since November that year. The
Stoxx 600 Europe Index tumbled 9.9 percent to 238.88 this past week, the
gauge’s lowest level in 13 months.

Oil tumbled 9.2 percent this week, the biggest drop since
the week ended May 6. Crude for September delivery was settled at $86.88 a
barrel on the New York Mercantile Exchange. Saudi Arabia holds 20 percent of
the world’s proven oil reserves.

 “The combination of
the global equity and commodities meltdown during the Saudi weekend, and to a
lesser extent the expected downgrade by S&P, is having an impact on all
sectors of the market,” said Fuad Aghabi, a director at Ajeej Capital, in

Standard & Poor’s downgraded the US’s AAA credit rating
for the first time since 1941. S&P lowered the US one level to AA+ while
keeping the outlook at “negative”. The US immediately lashed out at S&P,
with a Treasury Department spokesman saying the firm’s analysis contains a $2
trillion error. The rating may be cut to AA within two years if spending
reductions are lower than agreed to, interest rates rise or “new fiscal
pressures” result in higher general government debt, the New York-based firm
said yesterday.

“At this point, the impact of the ratings downgrade is not
evident,” said Bukhtiar. “Regional markets will take their cue from global
markets on Monday when they open.”

Saudi Arabia’s holdings of foreign securities rose 12
percent this year to a record SR1.32 trillion riyals ($350 billion) as of June
30, Saudi central bank data show.

Sabic slumped 5.8 percent to 97.75 riyals, the sharpest
decline since March 1. Al Rajhi declined 5.2 percent to 68.25 riyals, the
lowest price since March 2. National Industrialization Co, known as Tasnee,
dropped 7.3 percent, the sharpest fall since April 4, to 39.30 riyals.

A total of 144 shares dropped while one stock gained. Rabigh
Refining and Petrochemicals Co sank 9.9 percent to 22.60 riyals and Kingdom
Holding Co weakened 9.6 percent to 7.10 riyals.

“This is a reaction to global instabilities, however, the
fundamentals of the Saudi market remains strong, evidenced by very good
first-half results,” said Aghabi.

Saudi Arabia’s stock exchange is the only Gulf
Arab bourse open on Saturdays

Karl 8 years ago

This has more to do with the massive drop in oil prices, more than anything else, and the fact that the saudis open on sunday, and have to react to the news without following the Asian markets take on things... No other bond market is as large as the US' and the buyers of US debt remain buyers... Things could have been much worse, Fitch and Moodys could have also done the same..yet they haven't. Also, S&P's track record isnt exactly the best, remember sub-prime AAA??the drops in the past week in the DJ, NASDAQ, FTSE are were all pricing in an S&P downgrade...its not like S&P didnt give any warnings prior to the downgrade...IT DID...The markets are currently hugely oversold. However i dont see anything getting better, with the situation in Europe, so this may continue to drag markets further down, Italian and Spanish bond yields should be closely monitored.

Telcoguy 8 years ago

Yep, I think Europe is a much bigger worry. People have been on denial about my country for very long, every time someone tried to bring the issue of debt at the lower levels of government you had a whole mob lynching you. Truth is that the Spanish political system can not be afforded anymore, solution involves a deep rethinking of the country, probably including amendments to constitution. Something I see very unlikely until situation turns truly critical. Italy may be in better shape to proceed with reforms.
But things do not stop here, French banks are heavily loaded with sovereign debt of Italy, Spain, Greece... for years bond markets were counting on an implicit "German put" But Germany can not foot the bill for the whole Europe.
Once again I would like to thank our generous German friends for paying such great infrastructure as we got in Spain, some of it (maybe half of it) quite useful, the rest totally useless but for the photo opportunities for our local politicians.