Saudi bourse leads Gulf stock markets decline

Saudi stocks recorded their biggest one day drop in two weeks yesterday, dragged lower by Saudi Basic Industries Corporation (SABIC), the Middle East's largest listed company. Saudi Arabia's Tadawul index fell 1.7 per cent yesterday, the biggest one-day drop in two weeks, as SABIC dropped 8.4 per cent after it reported on Saturday that second-quarter profits fell 76 per cent compared with the same quarter last year because the global recession had dampened demands for plastics and fertilisers.

"The world economy is not showing any great signs of recovery and so one can't expect SABIC to have recovered either - it's a global cyclical company," said Keith Edwards, the head of asset management at the Doha-based investment company The First Investor. Bank stocks also suffered after Saudi Hollandi Bank reported a 72 per cent drop in second-quarter earnings, markedly below analysts' forecasts. Its shares fell 4.8 per cent. "Saudi Hollandi's profit fell dramatically on provisions and it is known for its conservative attitude and so tends to take forward provisions rather than wait until after the event," Mr Edwards said. "So there are clearly problems in the banking sector."

Mr Edwards said he expected provisions at other Saudi financial institutions to increase in the third quarter as the scale of potential losses at the struggling Saudi conglomerates Saad Group and Al Gosaibi becomes clearer. Saudi International Petrochemical Company dropped 7.1 per cent yesterday after quarterly profits declined 99.6 per cent. Overall, petrochemicals contributed almost 71 per cent to the drop in the Tadawul All Share Index.

Elsewhere in the Gulf, Kuwait's index fell 0.5 per cent, Qatar's index ended trading 0.35 per cent lower and Bahrain's benchmark closed 0.83 per cent down. In the UAE, markets were closed for a holiday. Ingmar Burgardt, of the BHF Bank in Abu Dhabi, said Saudi investors' sell-off of SABIC shares exacerbated the Tadawul index's fall. "It makes a significant impact when you have a few large sell orders during a period of low activity," Mr Burgardt said.

Gulf markets generally sustain low trading during summer months because many investors leave for holidays, he said. Mr Burgardt added that foreign institutions who invested in regional bourses last year, but left when the markets tumbled, have not yet returned to the Gulf. "We will not see the lows [of the early part of the year] again but we will see some lower prices," he said. * with agencies @Email:[e-mail]