Saudi index gains on civil servant perk restoration

24/04/2017 05:46 AST

Saudi stocks rose in heavy volumes on Sunday as investors cheered news that King Salman had issued a royal decree restoring financial allowances for civil servants and military personnel, while Egypt fell steeply on profit taking.

The allowances were reduced last September as part of austerity measures due to low oil prices.

Officials said on Saturday the cuts had been cancelled because of better-than-expected budgetary performance in the first quarter of 2017.

The move is likely to boost consumption, benefiting the retail and food sectors, according to economists at Riyadh-based Alrajhi Capital.

On Sunday consumer cyclical shares, which have been underperforming the market in the past year, were among the top gainers, helping push the index up 1.0 per cent.

Electronics retailer Jarir surged 8.3 per cent in its heaviest daily trading volume this year and home improvement retailer Saudi Company for Hardware (SACO) jumped 8.9 per cent in unusually heavy trade.

Shares of the Gulf’s largest dairy producer, Almarai, rose 1.7 per cent after reporting a first quarter net profit of 328.3 million riyals ($87.55 million), up 13.7 per cent from a year earlier.

Four analysts polled by Reuters forecast a net profit of 337.4 million riyals. Almarai attributed its improved results to better cost management, lower commodity costs and lower general expenses and said it will continue “to focus on costs control, efficiency gains and cash-flow preservation”.Other sectors such as banks, especially those exposed to the retail segment, are also likely to benefit from the restored allowance to the Saudi, the Alrajhi analysts said.

“The reversal of the allowance cut also highlights improved confidence in the economy, which is positive for the equities market in general,” said Alrajhi Capital.

Analysts said, however, that other economic measures such as permitting only Saudi nationals to work at retail outlets, may lead to higher operating expenses in the near term while other fiscal policies, such as next year’s introduction of value added tax, will likely hurt retailers’ earnings.

Sunday also marks the first day of the Saudi stock exchange settling trades within two business days of execution, a practice called T+2, rather than the previous same day settlement.

In contrast to the Saudi market, other bourses in neighbouring Gulf states experienced a quiet day.

Kuwait’s index edged up 0.1 per cent in below 10-day average volumes, while in Qatar the index lost 0.4 per cent, with petrochemicals producer Industries Qatar dropping 1.8 per cent as crude oil prices fell to a three-week low on Friday. Stock markets in the United Arab Emirates were closed for a public holiday.

The Gulf Today