The Saudi stock market faces selling pressure when it reopens today for the first time since the Dubai debt crisis erupted even though the kingdom has little real exposure to it, analysts said.
Closed since November 25 for the Eid al-Adha holiday, the Gulf’s largest bourse could take its cue from sharp plunges in Dubai, Abu Dhabi, Kuwait and Qatar, said Paul Gamble of Jada Investment.
Those steep losses came after Dubai’s government announced a six-month freeze on debt payments by Dubai World, a state-owned conglomerate whose 59bn dollars in liabilities the emirate said it would not guarantee.
Although up 32.3% since the start of the year on the back of buoyant oil prices and strong government investments, the market could easily succumb to the fears that sent the other markets reeling following Dubai’s move.
“The whole market could get whacked,” said a Saudi-based foreign analyst who asked not to be named.
But Saudi Arabia’s oil export-based economy and its very inward-focused banks “just don’t have those issues” that have hit Dubai hard, Gamble said.
“The (Saudi) banks themselves as far as we understand have minimal exposure” to Dubai generally and Dubai World specifically, he said.
Gamble points out Saudi banks cannot fulfill the capital demands of the domestic market and so lend little outside the kingdom.
The Riyadh government prevents most external lending in fact, said the head of one local bank.
“If Saudi banks want to get cross-border exposure, they have to get approval from Sama (the central bank) on a case by case basis. It’s not that easy,” he said.
Saudi banks have not disclosed their exposure to Dubai entities, but Deutsche Bank estimates Gulf countries represent 3.3% of all their risk assets, with only 1% in Dubai.
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