08/05/2011
TASI drops to two-week low due to fall in oil price
Saudi shares dropped to a two-week low Saturday, dragged by the petrochemicals sector following record drops in oil prices.
The Tadawul All-Share Index (TASI) fell 1.57 percent to 6,577.74 points, its lowest level since April 20. Over SR6.56 billion worth of shares changed hands on Saturday.
The falling oil prices put tremendous pressure on petrochemical stocks. The petrochemical index plunged 2.95 percent to 6,779.83.
The bellwether Saudi Basic Industries Corp. (SABIC) declined 2.93 percent to SR107.50. All other petrochemical stocks were in the red on Saturday.
Commenting on the stock fall, Faisal Alsayrafi, managing director and CEO of Financial Transaction House (FTH), said: “The drop in global oil and gas prices and lingering uncertainty in the Middle East shook the confidence of investors.
The Tadawul index fell as the fall in oil prices put pressure on petrochemical stocks.”
Oil fell on Friday to cap a frenzied trading week that sliced prices by a record of more than $16 a barrel on demand worries and a move by investors to slash commodities exposures.
Brent crude fell $1.67 to settle $109.13 a barrel in heavy trade, with volumes twice the 30-day moving average. The contract tumbled $16.76 a barrel for the week, marking the largest weekly decline ever in dollar terms.
US crude futures settled down $2.62 to $97.18 a barrel, after trading as high as $102.38 following supportive US jobs data.
US crude ended down $16.75 for the week, the biggest weekly drop since the contract began trading in 1983, Reuters reported.
“The global financial markets once again find themselves at a potential inflection point as the recent rally fueled by easy money gives way to greater doubt and concern about the persistence of the structural drivers of the crisis.
Worries are mounting in three areas in particular: The potential impact of the end of QE2, the growing recognition of the inevitability of defaults or debt restructurings in some of the more vulnerable euro zone member states, and worries about further tightening in China and other emerging markets,” Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said.
He added: “Even the US jobs report, in spite of positive surprises, highlighted the persistence of unemployment. All of this has tested the mood of the commodity markets and the oil price correction explains much of the pessimism in Saudi Arabia. The likely corollary of the current trends is a period of market volatility which will test the optimism of recent months.”
John Sfakianakis, chief economist at Banque Saudi Fransi, said the drop in Saudi Arabia’s stock index was expected given that oil fell dramatically last week as the dollar strengthened and dollar traded commodities fell as well.
Oil is at more reasonable levels albeit still exaggerated. Petrochemicals which witnessed a good rally over the last few weeks fell as their performance is well correlated to oil prices. Also, other blue chips saw a sell-off given that market sentiment was moderately down as a result of petchem stocks and the general sell-off climate which dominated. However whenever there is a sell off there is always an opportunity for others which the market will take notice in the short term.
“Going forward there are those who expect oil prices and dollar-based commodities as well as the dollar to continue their rally given that the US economy faces structural impediments and those that argue that the rally is based on fundamentals and more on speculation and could be coming to a close. What is true is that high oil prices have an impact on growth and asset prices and that will be further tested in the coming weeks,” Sfakianakis said.
The regional unrest had a pronounced adverse impact on investor sentiment in the region. The Tadawul index closed the quarter at 6562.85, 0.87 percent lower than the end of 2010 and 3.5 percent below its level at the end of Q1, 2010. However, the regional unrest caused TASI to test depths not seen since January 2009. It reached its lowest point of 5,323.27 at the beginning of March, the National Commercial Bank said in its latest report.
