State funds to support Saudi, rest of region may stay sluggish

DUBAI - 7 November 2017: State funds look likely to continue supporting Saudi Arabia’s stock market on Tuesday while the rest of the region may stay soft because of concern about the impact of the Saudi anti-corruption crackdown on regional fund flows.

The Saudi stock index has closed marginally higher on each of the past two days but regional fund managers believe that is the result of buying by state-linked Saudi government funds seeking to prevent a panic in the market.

“The market would have dropped 5 or 10 percent without the presence of government funds,” said one fund manager, referring to concern that the crackdown could deter investment by businessmen who fear being implicated, and could ultimately result in seizures or forced sales of equity stakes.

However, a mass sell-off of Saudi shares by foreign investors looks unlikely as many, although concerned by developments, say they are willing to give the crackdown the benefit of the doubt as a measure that could speed economic reforms.

The rest of the Gulf - particularly Dubai property shares - has mostly been weak over the past two days because of worries that Saudi investment flows into the region could be disrupted. This pattern may persist.

The global market environment is positive, with Brent crude oil hitting a more than two-year high of $64.44 a barrel overnight and MSCI’s broadest index of Asia-Pacific shares outside Japan up 0.8 percent on Tuesday morning.

However, the markets have shown very little reaction to oil’s advance or global equity trends in the last few weeks as they focus instead on factors such as the Saudi crackdown and the prospect of 5 percent value-added tax being imposed in the region as soon as in January.