Saudi Arabia’s stock market rose yesterday after the government announced details of its economic reform plans, while an improved mood in global markets lifted bourses elsewhere in the Middle East.
A 110-page Saudi reform document released on Monday night contained hundreds of policies and targets, including major austerity measures.
The government aims to reduce public salaries and wages as a proportion of the state budget to 40% from 45% by 2020, and cut water and electricity subsidies by 200bn riyals ($53bn).
Investment firm EFG Hermes commented: “Our first reading reaffirms our view that Saudi Arabian companies and consumers face a period of relative austerity over the next few years, and we stay underweight on Saudi equities.”
But the austerity steps were largely expected — the market had been falling in previous weeks on those expectations — and the main stock index closed 0.9% higher, in the highest trading volume for two weeks.
“The absence of a direct corporate tax and a tax on dividends are both positive catalysts for the Saudi equity market in the short term,” said Mohamed el-Jamal, managing director of capital markets at Abu Dhabi’s Waha Capital.
“Sectors that are expected to benefit from the plan are ones linked to religious tourism, private education, mining; whereas sectors like petchems and materials will see their subsidies phased out over the next few years.”
Saudi Arabian Mining Co (Ma’aden) rose 1.8%.
The energy minister said the kingdom planned to issue new licences covering exploration for minerals and to build more industrial cities. “This opens huge possibilities for future investment from foreign companies into the Saudi resources space, because there is vast untapped potential,” said Jassim al-Jubran, senior analyst at Saudi-based Aljazira Capital.
In the near- to medium term, Ma’aden will remain the prime beneficiary of the mining industry push, he added.
Medical insurer MedGulf, which could benefit from the plan’s intention to develop the medical sector, rose 4.9% in unusually heavy trade.
Retailer Fawaz Abdulaziz Alhokair Co jumped its 10% daily limit after it received an offer from a fund managed by a Dubai-based investment bank to buy its investment in Spanish clothing retailer Blanco for 350mn riyals ($93 mn).
“Investors clearly welcomed this move by Alhokair because Blanco was eating at the company’s profits and was one of the main reasons why the company barely broke even in its latest quarterly financial reports,” said Jubran.
Dar Al Arkan, one of the kingdom’s largest property developers, also jumped 10%.
The company, which reported declining profits in six of the last seven quarters, may benefit from the reform plan’s goal of boosting the construction sector’s contribution to gross domestic product to 10% from 5%.
Asian stocks hit five-week highs and Brent crude oil held above $50 a barrel, encouraging investors to accumulate shares in other Gulf markets.
Dubai’s stock index jumped 1.5% in the highest volume in two weeks.
Dubai Parks and Resorts, which accounted for almost a third of the market’s total turnover, jumped 2.8% to Dh1.45.
Last week HSBC initiated coverage of the company with a “buy” rating and a target price of Dh1.80.
Union Properties climbed 2.9% after the company secured a loan to finance development of a mid-to-upscale gated community in Dubai’s MotorCity.
Other rel estate developers also advanced with Emaar Properties adding 2.8%.
The main Abu Dhabi index rose 0.8% as Abu Dhabi National Energy jumped 5.3% and telecommunications company Etisalat, a constituent of the MSCI emerging markets index, gained 1.6%.
Egypt’s main index added 1.0% to 7,717 points, triggering a minor bullish triangle formed by the highs and lows since early May and pointing up to the April peak of 7,994 points.
Palm Hills Development rose 6.4% after the company announced on Tuesday that shareholders had approved its plan to increase its share capital to 4.6bn Egyptian pounds ($518mn) through an issue of bonus shares.
Investment firm EFG Hermes gained 2.8%, continuing to rise after it announced on Sunday that its sale of a 40% stake in Credit Libanais had been approved by the central bank of Lebanon.
Shares in the company have been in an uptrend since mid-May and are now up 38% year-to-date.
Elsewhere in the Gulf, the Kuwait index edged up 0.2% to 5,393 points, the Oman index rose 0.5% 5,843 points and the Bahrain index was flat at 1,116 points.