Saudi Stocks Enter Bull Market as Banks’ Cash Squeeze Abates

As investors bet that the Saudi government’s belated payments to contractors would help spur more gains, the Saudi Arabian stocks entered the bull market and extended their winning streak to six days.

Taking its rally this week to 7.7 percent, the Bottom of Form

Tadawul All Share Index added 2.3 percent to the highest level since July. Crossing the threshold for a so-called bull market, the gauge has advanced more than 20 percent since a recent low on Oct. 3. A record 19th day rising as the amount banks charge to lend to one another fell for a 10th straight day was clocked up by Al Rajhi Bank which was one of the biggest contributors to the increase.

Adding fuel to a rebound sparked by the largest ever international bond sale from an emerging nation, the kingdom said earlier this week it would settle payments owed to private companies before the end of 2016. A liquidity crunch that drove bank borrowing costs to the highest in seven years is being gradually eased by the injection of cash from the bond and government payments.

“Investors are focusing on local fundamentals more than anything else, and things now are clearly improving. Contractors are being paid, liquidity among banks is not a big concern anymore. Local investors just see this as a good moment to get back to the market after so much pain earlier this year,” said Mohammed Alsuwayed, the Riyadh-based head of capital and money markets at Adeem Capital.

Saudi Arabia is seeking to rein in a budget deficit that reached about 15 percent of the economic output of the country last year and since then the world’s biggest oil exporter had delayed payments to be made to contractors. Cuts to public-sector wages, which compounded a stick plunge in the third quarter, were among a string of austerity measures that the authorities in the kingdom had taken to reduce the government spending and thereby the budget deficit since the time that oil prices went down and is now trading at less than half 2014 levels.

Driving the three-month Saudi Interbank Offered Rate, a benchmark used to price loans, to the highest since 2009, the Saudi government raised 94 billion riyals ($25 billion) from the sale of bonds to local banks and institutions in the first eight months of the year. According to Bloomberg data, data available to marking the lowest since June 13, Saibor, as the rate is known, fell 1.1 basis points to 2.201 percent.

Al Rajhi Bank, which has the biggest weight on the benchmark index, rose 1.7 percent, taking its 19-day increase to 23 percent. An index comprising 12 lenders in the country advanced 2.2 percent, with all but one of its members gaining.

(Adapted from Bloomberg)

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Categories: Economy & Finance

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