What’s behind the Saudi stock market plunge? (Hint: oil)
- Published on Thursday, 20 August 2015 07:26
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Traders in Saudi Arabia have been questioning the reasons behind the market’s recent plunge according to Reuters, but the answer is right in front of them.
Here’s the story from Reuters:
A Saudi Arabian official denied media reports that this month’s plunge of the Saudi stock market was due to government bodies selling shares to raise money following the drop in oil prices, state news agency SPA reported on Wednesday.
“An official source announced that this claim is utterly and totally not correct,” SPA said without naming the official or specifying where the media reports appeared.
The official was quoted as saying that daily stock exchange data showed there had not been any unusual selling or buying of shares by the government or related bodies in recent days or weeks.
Read the full story here.
The reason for the market’s drop is obvious:
The Saudi stock market is more correlated with the price of oil than any other market. The recent plunge is directly related to the collapse in oil prices. Other markets in the MENA region have not done so well either thanks to oil:
Based on the level oil prices have fallen compared to MENA stock markets, I say there is a lot more room for stock markets in the region to fall. Bloomberg recently covered the Saudi government’s return to the bond market, where it plans on issuing up to $27 billion in bonds in 2015. Here’s more from Bloomberg:
After an eight-year interlude, Saudi Arabia’s government bond sales are coming alive.
The desert kingdom that’s home to both the world’s second-biggest oil reserves and Islam’s holiest sites sold on Monday five-year debt with a coupon of 1.92 percent, seven-year notes at 2.34 percent, and 10-year securities at 2.65 percent, according to two people familiar with the matter. The government didn’t say how much was sold, though two people with knowledge of the plan said last week it aimed to auction as much as 20 billion riyals ($5.3 billion) as part of a program to raise a maximum of 100 billion riyals by year-end.
The country’s renewed appetite for debt comes against a backdrop of deepening involvement in regional conflicts in Yemen and Syria, and a budget deficit that’s poised to widen to the most since 1987. For Mazen Al-Sudairi, the program also underlines King Salman’s resolve to maintain spending amid a collapse in oil prices, the country’s biggest revenue stream.