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Saudi Stocks Are Back in Grip of Bear Market as Austerity Bites

WT24 Desk

This is shaping up to be the worst year for Saudi stocks since the financial crisis, Bloomberg reports.

The kingdom’s benchmark equity gauge is trading in its second bear market of the year after falling to the lowest level since 2011 on Sunday, extending the worst selloff in the six-nation Gulf Cooperation Council. The Tadawul All Share Index has dropped 9.8 percent since the nation last week announced a series of cuts to government salaries and bonuses as part of effort to slash spending.

On Sunday the central bank directed local lenders to reschedule the consumer loans of clients affected by last week’s decision to scrap the bonuses and allowances of many state employees. Saudi stocks are on course for their worst year since 2008 as the government grapples with a budget shortfall that ballooned to the widest in more than two decades last year amid the slump in oil prices.

“Clearly the sentiment is deteriorating, with the vast majority of traders still digesting the consequences of the austerity measures announced last week,” said Mohammed Al-Omran, the chief executive officer of Riyadh-based Amac Investments and president of the Gulf Center for Financial Consultancy. “They will have a direct impact on growth prospects for companies, and we see a continuation of that pessimism impacting stock prices. It is hard to tell at this moment when sentiment will improve again.”

Oversold Signal

The Tadawul declined 1.4 percent as of 10:34 a.m. in Riyadh. Jabal Omar Development Co. was the biggest contributor to the slide, falling 6.1 percent, followed by Saudi Telecom Co.’s 7.9 percent drop. About 80 percent of the gauge’s 174 members retreated, according to data compiled by Bloomberg.

The main measure on Sunday closed 21 percent below a recent peak in April, crossing the threshold for a so-called bear market. The benchmark gauge’s 14-day relative strength index has been below the level that signals to some investors it may be oversold for a week.

The index that tracks building and construction companies sank to a record low on Sunday, and both the bank and cement stock gauges retreated to the lowest level since 2009.

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