Saudi stock trajectory slows down after swift uptrend

Both banks and petrochemicals, the two major sectors which had led growth in the last few weeks, pulled back

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Saudi Arabia’s stock benchmark, the Tadawul All Share Index, which has been in an uptrend since the Kingdom’s regulator said in July it would open the market to direct foreign investment early next year, added just 0.04 percent on Monday to close at 11,116.75 points.

Both banks and petrochemicals, the two major sectors which had led growth in the last few weeks, pulled back.

The financial sector index slipped 0.1 percent and the petrochemicals benchmark edged down 0.4 percent.

One of the factors putting pressure on banking stocks was new consumer lending regulations published by the central bank.

They cap fees that banks can charge borrowers and allow the regulator to limit the proportion of retail loans on any individual bank’s loan book.

Brokerage EFG Hermes said the regulations would have an “overall negative” impact on banks’ profits and stock prices.

“The imposition of caps on fees should substantially dent the retail loan income for banks, in our view, with the impact likely to be felt more by banks that have significant revenue contribution from retail banking business,” it said in a note.

In the petrochemical sector, Sahara Petrochemical Co fell 0.7 percent after saying on Sunday that its affiliate, Saudi Ethylene and Polyethylene Co (SEPC), would shut a ethylene and propylene plant for planned maintenance.

The impact on Sahara would be worth 3.8 million riyals ($1 million) in lost profit, Sahara said in a bourse filing. Another SEPC shareholder, National Industrialization Co (Tasnee), slipped 0.5 percent.

Shares in Saudi Arabian Mining Co (Ma’aden), on the other hand, rose 0.9 percent after the company said on Monday its joint aluminum smelter with US-based Alcoa has started commercial operations.

Elsewhere, Dubai’s main index rose 1.5 percent as Emaar, the emirate’s biggest listed developer, jumped 4.5 percent to AED11.65, a fresh six-year high; trading volume in the stock was the highest since April 2010. However, Emaar closed well off its intra-day peak of AED12.00.

Abu Dhabi’s benchmark rose 0.9 percent as that emirate’s largest listed developer, Aldar Properties, added 1.8 percent after announcing a sale of a residential tower for an undisclosed value.

Another Abu Dhabi-listed developer, Ras Al Khaimah Properties, climbed 0.9 percent.

“Aldar is now entering a period of transformation that should underpin a rerating of the shares,” BofA Merrill Lynch Global Research said in a report.

It cited a strong delivery pipeline of prime leasing assets, a revival of off-plan property sales in Abu Dhabi, and the rising value of Aldar’s land bank on the back of higher transaction values.

Meanwhile, Qatar’s bourse continued to recover from a 3.1 percent drop at the end of last week that was caused by one-off selling by foreign funds.

The Doha index rose 0.8 percent on the back of banking stocks.

Islamic lender Masraf Al Rayan added 2.9 percent, Qatar National Bank rose 1.8 percent and Qatar Islamic Bank climbed 2.3 percent.

Egypt’s bourse edged up 0.06 percent. Shares in El-Sewedy Electric rose 1.4 percent to 38.00 pounds after the firm posted a 13 percent increase in second-quarter net profit.

This article was first published in Saudi Gazette on Tuesday, Sep. 2, 2014.

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