Shares across the Arabian Gulf surged after the landmark Opec production deal, even as traders are divided on its longer-term effect on regional equities.
Oil prices continued to rally on Thursday, after the agreement where Opec producers will reduce output by 1.2 million barrels per day from January, with non-Opec member Russia also agreeing to cut production.
Brent crude futures, which rose by 9 per cent on Wednesday immediately after the deal, rose to US$52.73 a barrel on Thursday morning, and then were trading at about $53.68 a barrel in the late afternoon.
Shares in Saudi petrochemicals companies skyrocketed, with Sabic and Saudi Arabian Fertilizers closing up 2.5 per cent and 8 per cent respectively.
The Tadawul finished the day up 1.3 per cent at 7,093.66, its highest close in 12 months.
“We’ve had three major positive events in Saudi Arabia, namely the October bond issue, the announcement to pay receivables by the government, and now the Opec deal,” said Irfan Ellam, the head of equity research at NCB Capital in Jeddah.
“From the perspective of Saudi retail investors, who dominate trading on the market, there could be more upside, even if PE ratios are now looking a little high for institutional investors.”
Saudi investor sentiment was further bolstered by 130 billion Saudi riyals (Dh 127.31bn) worth of major mining and infrastructure contract announcements announced on Wednesday in the eastern region of Ras Al Khair.
Saudi Arabian Mining Company, known as Maaden, also announced on Wednesday that it was developing a 24bn riyal project to expand its phosphate fertiliser facilities, adding a further 3 million tonnes per year production capacity by 2024.
“Clearly the appetite for public spending is coming back,” said Nayal Khan, the head of institutional equites sales trading at Saudi Fransi Capital in Riyadh.
The Qatar Exchange closed up by 1.2 per cent on Thursday, led by Industries Qatar and Ezdan Holding. UAE stock markets were closed on Thursday for the National Day holiday.
“Broadly speaking the deal means more revenues for oil producers, which of course will be positive for regional economies and hence should be positive for equity markets,” Mr Khan said.
Traders remain divided on the effect of the Opec deal on the markets going forward, especially for Saudi Arabia.
“The near-term bias in Saudi is to the downside, given the country’s upcoming budget announcement,” said Mr Khan.
“Then there’s the expectation of weak corporate earnings and new austerity measures and possible taxes on the horizon.”
Mr Ellam said that such events are now being discounted by markets, given the Opec news, and were therefore unlikely to result in a sharp correction.
“If there are going to be any surprises in the budget, they’re likely to be positive risk wise, as the government has already made clear its plans to balance its finances by 2020,” he said.
“If there are additional revenues coming from oil then there may also be the potential to provide some stimulus for the economy.”
jeverington@thenational.ae
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