The Saudi stock market is experiencing turbulence, marking its worst start to the fourth quarter in years amid escalating regional tensions. The Tadawul All Share Index has declined by 3.7% in just the first four trading days of October, largely influenced by heightened conflicts involving Israel and Iran-backed Hezbollah.
Impact of Geopolitical Tensions
Despite a strong summer rally, the recent surge in violence has erased the year-to-date gains of the index. Investors are increasingly concerned about the ramifications of a potential military clash in the region, particularly around the strategically vital Strait of Hormuz, crucial for global oil supply.
“Investors are generally spooked by wars and geopolitical conflicts,” said Ryan Lemand, CEO of Neovision Wealth Management. He noted that markets in nearby countries could experience outflows as uncertainty rises.
Market Predictions and Economic Concerns
Market analysts predict continued pressure on the Tadawul index, with Jassim Al-Jubran from Aljazira Capital forecasting a drop to around 11,380 points, about 3.3% lower than the previous close. However, if the situation improves, he suggests the index could potentially recover by the same margin.
The reliance on oil revenues remains a significant concern, as lower prices could necessitate a reevaluation of the kingdom’s ambitious Vision 2030 economic diversification plans. HSBC has downgraded Saudi equities to neutral from overweight, citing near-term geopolitical risks and weak oil prices as factors.
Oil Prices and Market Stability
Although Brent crude futures have seen some increases due to fears of supply disruptions, they are still below $80 a barrel—far from the $96 needed to balance Saudi Arabia’s budget, according to the International Monetary Fund. Bloomberg Intelligence notes that the breakeven point could be as high as $112 when factoring in the expenditures of the Public Investment Fund (PIF).
Abdulwahhab Abed of Sedco Capital indicated that oil prices would need to stay below $69 a barrel for a significant period to pose a serious threat to the Saudi stock market.
Opportunities Amid the Turmoil
Despite the current market pressures, some investors view the situation as a potential buying opportunity. Mohammed Al-Suwayed of Razeen Capital suggests that while regional tensions create temporary market dips, they also present chances for acquiring stocks at discounted prices.
In summary, the Saudi stock market is navigating a precarious landscape of geopolitical tensions and fluctuating oil prices, with investors divided on the immediate outlook. As the situation evolves, the market’s resilience will be tested against external pressures and the kingdom’s economic strategies.
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