Oil prices affect Saudi market’s short-term performance: Jadwa

Oil price fluctuations reflect immediately on the short-term performance of the Saudi stock market, as jittery retail investors, who dominate 90 percent of daily traded volumes, dump private companies stocks, fearing that the government might slow or cut spending, Jadwa Investment said in a recent report.

Investors worry that less government revenue, 86 percent of which come from oil exports income, means the private sector companies won’t get enough contracts from the government to sustain their growth and long-term profitability.

In general, the correlation between global oil prices and the Tadawul All Share Index (TASI) remain present, but not prominent, according to Jadwa.

Despite the slump in oil prices since early 2014, the government maintained an expansionary fiscal policy at the end of the year, posting a record budget, which supported the stock market.

“Since then, the TASI’s recovery has been helped by a smooth Royal succession, two salary bonuses to public sector employees, and stabilization in global oil prices,” according to the report.

The correlation of TASI to oil prices since 2007 has been equal to 0.355, which is not very strong given the economy’s strong dependence on oil.

The report added that some sectors are more vulnerable than others to oil prices. For example, companies that supply state-owned Saudi Arabian Oil Company (Aramco), or whose activities are linked to Aramco’s projects, fall under such category. The most affected sectors are petrochemicals, industrial investment, cement and building and construction.