“The knee-jerk reaction at the market opening yesterday was a result of nervous investors selling off in fear the cuts in subsidies would be detrimental to company earnings,” says Rasmala’s head of equity funds and portfolios.

Reuters – Saudi stocks may rise as budget gloom eases   

Wednesday, 30 December 2015

Saudi Arabia’s stock market may rise on Wednesday as an initial, negative reaction to the 2016 state budget fades and investors focus more on the positives. Other Middle East markets may move sideways because of soft oil and global equities prices.

The Saudi index fell 0.9 percent on Tuesday as retail investors reacted negatively to the budget announcement, which included spending cuts, rises in fuel, natural gas feedstock and electricity prices, and tax hikes.

Companies have started estimating the damage to their bottom lines; Saudi Basic Industries said on Wednesday that its costs would rise 5 percent in 2016, while Saudi Arabian Fertilizer Co said costs would rise 8 percent and Saudi Cement estimated a 68 million riyal ($18.1 million) cost increase.

However, those cost hikes were at least partially factored into stock prices before the budget announcement, and they are slightly smaller than some analysts had been estimating.

So investors may focus on Wednesday on the positives in the budget, including the fact it shows the government’s willingness to adopt difficult reforms to address a huge deficit caused by low oil prices. As such, it could help to sustain confidence in the riyal’s peg to the U.S. dollar.

“The knee-jerk reaction at the market opening yesterday was a result of nervous investors selling off in fear the cuts in subsidies would be detrimental to company earnings,” said Mohammed Shabbir, head of equity funds and portfolios at Dubai-based Rasmala Investment Bank.

Other companies that are not directly impacted by the budget, such as banks, insurance and mid-sized companies, may find support from bargain-buyers, he added.

The Saudi index already began rebounding from its lows on Tuesday, closing at 6,931 points compared to its intra-day low of 6,756 points. It faces minor technical resistance at 7,089 points, its late December high, and stronger support at 6,672 points, the December low.