Saudi Banks Boost Main Stock Index Amid Recovery Bets: Inside EM

(Bloomberg) -- Saudi lenders boosted the main index in Riyadh to the biggest gain in the Middle East amid bets that a recovery in the kingdom’s economy will help earnings next year.

The Tadawul Banks Index, composed of 12 banking shares, advanced 0.7% on Sunday to end at the highest level since Feb. 23. Al Rajhi Bank, Bank AlBilad, Samba Financial Group and Saudi British Bank climbed between 0.7% and 2.1%, versus a 0.8% increase for the Tadawul All Share Index.

A “fast-recovery scenario” suggests 11% earnings upside for Saudi banks in 2020-21, according to Edmond Christou, an analyst at Bloomberg Intelligence. “A stronger economy could support a recovery in Saudi bank earnings, we believe, with consensus for both 2020-21 subject to 11% upward revisions on lower cost-of-risk provisioning and better revenue,” he wrote in a note.

Saudi Arabia’s income from oil is expected to drop by nearly a third to 410 billion riyals ($109.3 billion) this year as the fall in crude prices takes a toll on the kingdom, Crown Prince Mohammed bin Salman said in a statement last week. Still, non-oil revenue is expected to rise 14% to 360 billion riyals, he said, with domestically unpopular tax and fee hikes helping to lessen the blow to the budget.

Brent crude jumped 8.4% last week to $42.78 per barrel, trimming losses this year to about 38%.

MIDDLE EASTERN MARKETS:

• First Abu Dhabi Bank rose as much as 3.4%, trimming increase to 0.5% at close
  • The lender “is the safest name amongst UAE banks with better asset quality, lowest cost of risk and relatively higher public and public sector related entities exposure,” said Divye Arora, a portfolio manager at Daman Investments in Dubai
• Kuwait’s Premier Markets index fell 1.8%, down for a third session since MSCI Inc. confirmed the country’s upgrade to emerging markets last week

  • “These are investors realizing gains well before the inclusion, justified by them seeing the market already peaked,” said Noaman Khalid, associate director of indices macroeconomics and strategy at Arqaal Capital

    • “Macro fundamentals justify this to certain extent with oil prices extremely weak, second wave of Covid that could be followed by another wave of lockdowns all put pressure on market.”
• Gauges in Dubai, Abu Dhabi, Oman and Israel rise as much as 0.5%, while those in Egypt, Qatar and Bahrain fell as much as 0.6%

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