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Saudi Banks Boost Main Stock Index Amid Recovery Bets: Inside EM

Filipe Pacheco
·2 min read

(Bloomberg) -- Saudi lenders boosted the main index in Riyadh to the biggest gain in the Middle East amid bets that a recovery in the kingdom’s economy will help earnings next year.

The Tadawul Banks Index, composed of 12 banking shares, advanced 0.7% on Sunday to end at the highest level since Feb. 23. Al Rajhi Bank, Bank AlBilad, Samba Financial Group and Saudi British Bank climbed between 0.7% and 2.1%, versus a 0.8% increase for the Tadawul All Share Index.

A “fast-recovery scenario” suggests 11% earnings upside for Saudi banks in 2020-21, according to Edmond Christou, an analyst at Bloomberg Intelligence. “A stronger economy could support a recovery in Saudi bank earnings, we believe, with consensus for both 2020-21 subject to 11% upward revisions on lower cost-of-risk provisioning and better revenue,” he wrote in a note.

Saudi Arabia’s income from oil is expected to drop by nearly a third to 410 billion riyals ($109.3 billion) this year as the fall in crude prices takes a toll on the kingdom, Crown Prince Mohammed bin Salman said in a statement last week. Still, non-oil revenue is expected to rise 14% to 360 billion riyals, he said, with domestically unpopular tax and fee hikes helping to lessen the blow to the budget.

Brent crude jumped 8.4% last week to $42.78 per barrel, trimming losses this year to about 38%.

MIDDLE EASTERN MARKETS:

First Abu Dhabi Bank rose as much as 3.4%, trimming increase to 0.5% at closeThe lender “is the safest name amongst UAE banks with better asset quality, lowest cost of risk and relatively higher public and public sector related entities exposure,” said Divye Arora, a portfolio manager at Daman Investments in DubaiKuwait’s Premier Markets index fell 1.8%, down for a third session since MSCI Inc. confirmed the country’s upgrade to emerging markets last week

“These are investors realizing gains well before the inclusion, justified by them seeing the market already peaked,” said Noaman Khalid, associate director of indices macroeconomics and strategy at Arqaal Capital

“Macro fundamentals justify this to certain extent with oil prices extremely weak, second wave of Covid that could be followed by another wave of lockdowns all put pressure on market.”Gauges in Dubai, Abu Dhabi, Oman and Israel rise as much as 0.5%, while those in Egypt, Qatar and Bahrain fell as much as 0.6%

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