Bears tighten grip on Saudi stock market

04/10/2016 05:51 AST

This is shaping up to be the worst year for Saudi stocks since the financial crisis. The kingdom’s benchmark equity gauge will start trading in the second bear market of the year after falling to the lowest level since 2011 on Sunday, extending the worst selloff in the six-nation Gulf Cooperation Council this year.

The Tadawul All Share Index has dropped 8.5 per cent since the nation last week announced a series of cuts to government salaries and bonuses as part of effort to slash spending, taking its decline from a recent peak in April to 21 per cent, past a threshold for a bear market.

The central bank on Sunday directed local lenders to reschedule the consumer loans of clients affected by last week’s decision to scrap the bonuses and allowances of many state employees. Saudi stocks are on course for their worst year since 2008 as the government grapples with a budget shortfall that ballooned to the widest since 1991 last year after oil prices halved in the past two years.

"Clearly the sentiment is deteriorating, with the vast majority of traders still digesting the consequences of the austerity measures announced last week,” said Mohammed Al-Omran, the chief executive officer of Riyadh-based Amac Investments and president of the Gulf Center for Financial Consultancy. "They will have a direct impact on growth prospects for companies, and we see a continuation of that pessimism impacting stock prices. It is hard to tell at this moment when sentiment will improve again.”

The Tadawul’s 14-day relative strength index has been below the level seen by some investors as oversold for four consecutive trading days. A measure that tracks the shares of building and construction companies sank to a record low on Sunday, while the bank and cement stock indexes both dropped to the lowest level since 2009.

Times of Oman