Saudi market rallies despite threat of austerity as oil price ticks up
A rise in oil prices has seen Saudi Arabia’s stock market rally impressively despite warnings that the country faces growing fiscal difficulties.
The Tadawul All Shares Index – Saudi Arabia’s highly secretive stock market – rose for the fourth day in a row on Sunday, its longest winning streak since November 2015.
For the week ending 28 January 2016, total stock market capitalization increased by 7.31 per cent week-on-week to 1.35 trillion Riyals (£252bn), with substantial increases in the financial services, retail and tourism sectors.
Over the same period, oil prices increased across the board. Brent Crude ended last week up 7.9 per cent, while US crude rose 4.4 per cent, paring their monthly losses to 6.8 per cent and 9.3 per cent respectively.
The news will come as a relief to Saudi-based investors who have been inundated with bad news recently regarding the global oil slump. Even as the Tadawul started showing signs of recovery, Masood Ahmed, head of the Middle East department at the International Monetary Fund (IMF), publicly warned that Saudi Arabia needs to urgently diversify its economy away from oil or face bankruptcy within years.
Last year, the country’s deficit increased to 367bn Riyals or 15 per cent of GDP, largely driven by a 23 per cent drop in oil revenues. The ministry of finance has already begun to implement austerity measures, increasing the cost of gasoline, electricity, and water.