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Volatile Saudi Stocks In Spotlight As Khashoggi Drama Undermines Foreign Investor Confidence

So much for transparency.

Saudi stocks got off to a rough start on Sunday, falling nearly 3.7% early in the session before reversing the entirety of those losses to trade positive.

This wild ride is indicative of the way things have played out recently for equities in the Kingdom amid the ongoing diplomatic crisis surrounding the murder of Saudi dissident journalist Jamal Khashoggi.

Today was of course the first day Saudi assets got a chance to react to the Kingdom’s Friday evening admission that Khashoggi is in fact dead. To say the international community is skeptical of Riyadh’s “fist fight” narrative would be an understatement. Donald Trump is reserving judgment, but lawmakers on Capitol Hill are pushing for possible sanctions.

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This comes at a pivotal time for Saudi markets. Back in June, MSCI announced that starting in June 2019, it will include the MSCI Saudi Arabia Index in the MSCI Emerging Markets gauge and the MSCI ACWI Index in a nod to the country’s efforts to provide more transparency to foreign investors.

The MSCI news came less than three months after the Kingdom won EM status from FTSE.

At the time, Commerce and Investment Minister Majid Al-Qasabi called the MSCI news “a reflection of the vision of 2030 towards building an advanced and open financial market for the world; its role as a leading financial market and a hub for regional and global investment across the Gulf, Middle East and North Africa.” He continued, predicting “a great impact on stimulating companies and the private sector by increasing the volume of investment opportunities toward them, enhancing liquidity in the financial market and fair valuation of the shares of companies.”

Fast forward to October and all of that is in jeopardy thanks to the extrajudicial killing of a journalist. A consequence of Khashoggi’s death is that Crown Prince bin Salman’s war in Yemen is back in the international spotlight and anyone who has followed that conflict since the Saudis intervened in 2015 knows the optics are absolutely horrible for Riyadh.

Recent action in Saudi stocks casts considerable doubt on the idea that foreign investors have any hope of knowing precisely what’s driving price action on a given day. Sunday was a good example. As noted here at the outset, the Tadawul All Share Index managed to pare all of its losses and if you look at the following chart, you’ll note that the sessions highlighted in green were marked by what some observers say was state-backed buying in the interest of arresting a 4-day slide that had sent the index to its lowest since January.

Saudi

It seems almost certain that state buying was behind the late rally on Sunday. Have a look at 10-day volatility on the index:

SaudiVol

One certainly hopes the SWF is excited about loading up on more Saudi shares because it doesn’t look like the international community is in a particularly forgiving mood when it comes to butchering journalists in consulates.


 

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