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Saudi Stocks Enter Bear Market Just as Aramco’s Giant IPO Nears

Filipe Pacheco
Saudi Stocks Enter Bear Market Just as Aramco’s Giant IPO Nears

(Bloomberg) -- Saudi Arabian stocks slipped into bear market territory, just as investors await the initial public offering of Aramco, the most important share sale in the country’s history.

The Tadawul All Share Index declined 1.6% on Tuesday, losing more than 20% from a recent high in early May. The market’s pull-back over the past few months was fueled in part by an increase in geopolitical risk after attacks on giant oil producer Saudi Aramco’s facilities in September.

It is dangerous for investors to get involved in the Saudi market “given the geopolitical uncertainty at the moment,” said Naeem Aslam, chief market analyst at ThinkMarkets in London. On top of that, Aramco’s IPO “is happening at an interesting time, when we do not have sufficient demand due to the trade war,” he said.

The decline in the country’s equity index comes just as Aramco intensifies preparation for a mammoth IPO that could happen as early as November and potentially raise $40 billion.

A number of analysts have said that local investors could be selling other shares in order to open room for Aramco. Even if shareholders decide to float only 1% of the company, it could equal a decade of proceeds raised through other IPOs in the Saudi market.

Read: Aramco’s sale tests Saudi faith in the Crown Prince’s big project

Losing Steam

Saudi stocks have been losing momentum also as passive inflows, triggered by the nation’s inclusion in major emerging-market benchmarks, fade. Morgan Stanley and EFG-Hermes Holding are among brokers that cut recommendation for Saudi shares earlier this year, citing high prices and weak fundamentals.

A gauge tracking the Saudi Arabia’s biggest listed lenders has retreated about 27% since MSCI started to upgrade the kingdom’s equities in May. Al Rajhi Bank, Riyad Bank and National Commercial Bank dropped at least 1.6% on Tuesday, dragging on the index the most.

Read: Aramco Is Set to Pay Up to $450 Million in Fees to IPO Advisers

“Companies’ earnings, especially banking and petrochemicals, have been under pressure,” said Ali El Adou, the head of asset management at Daman Investments in Dubai. “The market needed a catalyst to move lower, and the Aramco IPO was that catalyst.”

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To contact the reporter on this story: Filipe Pacheco in Dubai at fpacheco4@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Jon Menon, Blaise Robinson

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