“Not a market was stirring”…
Well, except for the Mid-East bourses where Saudi stocks are markedly higher on the first trading day since Riyadh announced its 2017 budget.
(Chart: Bloomberg)
“Riyadh said late on Thursday that it had succeeded in cutting a huge budget deficit caused by low oil prices and would increase government spending in 2017 to support flagging economic growth,” Reuters notes, adding that “it pledged to increase infrastructure spending, said it had settled unpaid bills to the private sector and promised to settle future bills within 60 days of receiving them.”
As a reminder, the Saudi budget deficit blew out to some 15% of GDP in 2015 following the sharp decline in oil prices. The pain was made all the worse by the financial strain of continuing the war in Yemen (where coalition bombing runs have killed an untold number of civilians).
Riyadh attempted to alleviate some of the financial strain by cutting subsidies and tapping debt markets (the country plans to sell $10b-15b in international bonds next year), neither of which are particularly desirable options for the kingdom. Here’s a bit more from The National:
The utility Saudi Electricity jumped 6.6 per cent after the government said in the budget it would raise domestic fuel and electricity prices by unspecified margins later this year.
The petrochemicals sector was generally strong after the government said it would not raise gas feedstock prices before 2019. A feedstock price hike in the 2016 budget squeezed some petrochemical producers’ margins.
The construction company Abdullah Abdul Mohsin Al Khodari and Sons gained 1.9 per cent after the government pledged to raise infrastructure spending.
Of course a rosier outlook for crude prices doesn’t hurt either and indeed the 2017 budget assumes the OPEC/non-OPEC cuts are implemented in full (a dubious assumption in my mind).
One thing’s for sure, they’d better figure out a sustainable fix for the budget gap soon, because cutting subsidies to everyday Saudis will eventually cause social upheaval and at the end of the day, you can’t behead everyone.
Other regional bourses are mixed on the session. Via Bloomberg:
- Abu Dhabi’s ADX General Index +0.4%; Kuwait’s SE Price Index +0.2%
- Dubai’s DFM General Index little changed, while those in Oman and Bahrain advance less than 0.1%
- Qatar’s QE Index -0.2%
