Saudi stock market reacts positively to anti-corruption campaign

The anti-corruption campaign announced on Saturday in Saudi Arabia briefly dragged down the kingdom’s stock market on Sunday but prices recovered to close higher as some investors bet the crackdown could bolster reforms in the long run.

After initially tumbling as much as 2.2 percent on Sunday, the Saudi stock index rebounded to close slightly higher. Shares of most banks rose, a sign of economic optimism.

Eleven princes, four ministers and tens of former ministers were detained by the new anti-corruption committee headed by Crown Prince Mohammed bin Salman.

Many bankers and analysts said the crackdown on corruption could help the economy by making it easier for Prince Mohammed to pursue reforms that include slashing the state budget deficit, putting more women into employment, lifting a ban on women driving, and selling $300 billion of state assets.   

Transformation agenda 

Hasnain Malik, global head of equity research at emerging markets investment bank Exotix, said “this might also be a necessary condition for pushing the austerity and transformation agenda, the benefits of which very few investors are pricing in.”

Many corporate executives expect Prince Mohammed to persuade rich Saudis to repatriate some of the billions of dollars which they are believed to have transferred overseas for safe-keeping, and which could now help to kick-start the development projects that he plans.

The corruption crackdown may be an initial step in this effort; the decree creating the committee gave it the right, pending the result of investigations, to seize assets at home or abroad and transfer them to the state Treasury.

A chief economist at a big regional bank said Prince Mohammed’s main motive for acting was frustration that reforms were not moving fast enough.

The privatization program, for example, including the planned sale of 5 percent of national oil giant Saudi Aramco, has been discussed for many months with little action. Now the program may pick up.