Petrochemical and small-cap stocks turned around Saudi Arabia's index after early declines on Monday while bluechip companies dragged other Middle Eastern bourses lower. The Saudi benchmark swung in volatile trade, dipping below the critical 6,000 level but then gaining momentum mid-session as petrochemical and speculative stock were heavily bought, lifting the index 1.4 percent to settle at 6,177 points.
"The swing factor in the stock market were the petrochemical shares," said a Riyadh-based trader. "Further dips in the market will make those stocks relatively more attractive from a valuation perspective." Saudi Basic Industries (SABIC), the largest stock by market value, jumped 3.3 percent, helping lift the petrochemical index 3.1 percent. Upcoming earnings will show how far petrochemical companies' gross margins were squeezed by subdued global demand and the resumed slump in oil prices, coupled with higher operating costs following recent moves by the government to reduce subsidies.
"Petrochemical had a challenging year in 2015 and have lost their cost advantage versus international players and we expect 2016's net income to decline," said a note from Riyadh-based NCB Capital. Traders also bought back speculative stocks which slumped on Sunday, triggered by margin calls. Emaar Economic City and Knowledge Economic City, mid-tier stocks, each soared more than 7.0 percent.
Yanbu Cement, a pure play on the kingdom's construction sector, jumped 7.1 percent after releasing its fourth quarter earnings on Sunday. Net income rose 8.3 percent from a year earlier, according to a bourse filing. "We believe the 8.3 percent year-on-year growth in net income is attributed mainly to higher sales volumes coming from a low base because 2014's fourth quarter was hampered by the changes in the labour market and the lower demand due to the Hajj season," said a note by NCB Capital.
High inventory levels and continued demand slowdown led larger cement companies to offer sales discounts in 2015. "We believe Yanbu Cement offered an average discount of 7 percent to its product in 2015," the note added. Worries over an economic slowdown in China soured sentiment on other Gulf markets. Dubai slid 1.1 percent as initial gains fizzled out. Emaar Properties fell 1.6 percent.
Arabtec rose 3.5 percent after Abu Dhabi's Aldar Properties awarded the builder a 2 billion dirham ($544.5 million) for 1,017 luxury villas in the United Arab Emirates capital. Blue-chip lenders dragged Abu Dhabi's bourse 1.4 percent lower, with First Gulf Bank (FGB) and Abu Dhabi Islamic Bank (ADIB) leading the sector's decline, each falling more than 3.0 percent.
Standard & Poor's said it expects negative earnings growth for banks in the United Arab Emirates in 2016 and a lacklustre performance in 2017. "We believe the uncertainty about how long oil prices will remain weak will force businesses and government to adopt a conservative stance, which will weaken spending for infrastructure and private-sector investments, and rein in bank lending," S&P added.
Analysts tended to agree. "Non-performing loans are likely to rise and will deter banks from making new loans and borrowers from seeking additional credit," said a note from Dubai-based Japanese financial firm Nomura. Qatar's index slid 0.02 percent closing at 9,699 points, off the intra-day low of 9,599 points. Top losers included Qatar Insurance and real estate developer Ezdan Holding Group, retreating 3.3 and 2.0 percent respectively.
In Egypt, Cairo's main benchmark declined 2.2 percent as volumes picked up, intensifying losses across the board. Investment bank EFG Hermes and foreign investor favourite Commercial International Bank (CIB) fell 9.5 and 3.9 percent respectively. Foreign and non-Egyptian Arab traders were net sellers in the market, bourse data showed.
Comments
Comments are closed.