Tuesday, Mar 18, 2008
(This story was originally published on Monday.)
By Maria Abi-Habib
Of ZAWYA DOW JONES
DUBAI (Zawya Dow Jones)--Wall Street traders depressed by the latest round of woe to hit U.S. markets are lucky they're not trading stocks in oil-rich Saudi Arabia.
Saudi's Tadawul Stock Exchange, the Mideast's largest equity market, has fallen 13% since the beginning of the year, compared with a near 10% slide on the Dow Jones Industrial Average over the same period.
Bellwether stocks like Saudi Basic Industries Corp. (2010.SA), and Al Rajhi Bank (1120.SA) are being hit by a U.S. recession, according to Samba Financial Group (1090.SA), the kingdom's second-largest lender by market value.
"If there is a U.S. recession, there will be a slowdown in the demand for petrochemicals," Mohammed Shabbir, a senior investment officer at Samba's capital asset unit, told Zawya Dow Jones in a phone interview Sunday. "U.S. interest rate cuts have been followed by Saudi, impacting banks' treasury assets and their bottom-line profitability."
Flagging Saudi stocks may be a sign that the oil-rich Arab countries of the Persian Gulf are not immune to the subprime economic ills now hitting the U.S.
Profits at Saudi's largest traded banks slumped last year, according to Zawya Investor data. Al Rajhi, Saudi Arabia's largest lender by market value, posted a 12% fall in net income; SABB (1060.SA) profits fell 14%; and Samba's income dropped 7% over the same period.
Shares in Sabic, the world's largest petrochemical company by market value, slid 11% since the beginning of the year, while Al Rajhi's stock fell 19% over the same period.
Sabic accounts for a quarter of all shares traded on the Tadawul. The company, which makes raw polymers used to make plastics and packaging, posted fourth-quarter earnings that failed to meet market expectations.
Standard & Poor's put Sabic's U.S. unit on credit watch after it posted a third-quarter loss of 26% in its earnings before interest, tax, depreciation and amortization compared to the same period a year earlier.
Record oil revenue flooding into the world's largest exporter of crude is doing little to bolster the Tadawul. Out of seven Gulf stock markets tracked by Zawya Dow Jones only Saudi and the Dubai Financial Market have fallen this year.
Isolation
Ironically, the Tadawul has become a victim of its own isolation.
International investors cannot buy Saudi shares directly at a time when foreign money is looking at the oil-rich Persian Gulf as a potential sanctuary from turmoil on European and the U.S. markets.
Saudi is the only Gulf bourse to prohibit direct foreign investment, exposing it to volatile retail traders.
To be sure, Saudi company earnings on the whole remain robust and the outlook for the kingdom's economy is bright, with oil trading comfortably above $100 a barrel.
Timothy Gray, the chief executive of HSBC Holding PLC's (HBC) Saudi investment unit, believes international markets will not affect the Tadawul's long-term performance. He expects a rebound in share prices later this year as companies post quarterly results.
"This is a retail-dominated market and psychological factors tend to immediately impact the market more than fundamentals," Gray said in a phone interview Sunday.
Gray added that the market is also down on low volumes this year ahead of large initial public offerings of shares.
Zain Saudi Arabia, the kingdom's latest telecom's license operator, will list later this week ahead of Al Inma Bank's $2.8 billion IPO in April.
The Al Inma IPO will be the region's second-largest offering.
Any gloom hanging over banking stocks will be swept away by the booming economy, which is expected to increase burgeoning Saudi bank deposits, HSBC's Gray added.
Saudi Arabia's export income grew to about $240 billion last year, up from $39 billion in 1998, pumping a flood of capital into the country's economy, according to a report by Gulf-based investment bank Global Investment House. Oil accounts for about 90% of Saudi's total exports, Global says.
The Tadawul closed Sunday down 0.4% at 9657.93.
-By Maria Abi-Habib, Dow Jones Newswires; +9714 364 4962; maria.habib@dowjones.com
Copyright (c) 2008 Dow Jones & Company, Inc.
(END) Dow Jones Newswires
18-03-08 0419GMT
