Saudi Subsidies Pummel Stocks as Riyal Depreciation Bets Widen
TEHRAN (Tasnim) – Saudi Arabian stocks declined after the kingdom announced one of its biggest shakeups in economic policy.
Forward contracts for the riyal rose to the highest level since 1999 on speculation the country may allow its currency to weaken.
The Tadawul All Share Index sank 1.7 percent as of 2:53 pm on Tuesday in Riyadh, Bloomberg reported on Wednesday.
A gauge of petrochemical companies slid to the lowest level since July 2009. The kingdom reduced energy subsidies and intends to cut spending in 2016 to 840 billion riyals ($224 billion) from 975 billion riyals this year.
Saudi forward contracts, which are used to bet whether Saudi Arabia will allow its dollar-pegged currency to weaken in the next 12 months, jumped 280 points to 755 points.
“The new reality is sinking in,” said Nabil Farhat, an Abu Dhabi-based partner at Al Fajr Securities. Petrochemical companies are among the first to feel the pressure because a “cut in fuel subsidies will drive up the costs,” he said.
The Tadawul All Share Petrochemical Industries Index fell 5.2 percent. Saudi Basic Industries Corp., one of the world’s largest chemicals manufacturers, was the biggest contributor to declines in Saudi stocks. The company fell 5.5 percent, the most in four months.
Sahara Petrochemical Co., which also manufactures chemicals, sank to the lowest level since April 2009. The company is assessing the impact of higher gas and power rates, which may be reflected in its 2016 financial data, according to a statement to the bourse.
Yanbu National Petrochemical Co., retreated 7.6 percent to the lowest level since February 2010. National Petrochemical Co. slid 7.1 percent, the most in two months. Saudi International Petrochemical Co. fell 6.6 percent to a more than six-year low. Saudi Electricity Co. dropped 6 percent, the most since August.
