Saudi Arabia’s benchmark Tadawul All Share Index erased all yearly gains as the conflict between Israel and the militant group Hamas compounded risks in a market already buffeted by monetary and geopolitical headwinds.
The stock index fell as much as 1% on Thursday, extending weekly losses and wiping out all gains made this year. The Tadawul had rallied as much as 19% from March lows through July, stopping shy from entering a bull market.
Concerns are mounting that the conflict between Israel and Hamas escalates into a wider conflict that endangers crude flows. Oil is edging higher on Thursday after OPEC+ leaders Saudi Arabia and Russia reaffirmed their close cooperation in the market.
This week’s drop extends a decline in the MSCI GCC Countries Combined Index to over 6% in 2023 amid the uncertain outlook for monetary policy and geopolitics.
Saudi banks — which comprise 36% of the Tadawul — are under pressure as elevated interest rates curb demand for credit and rising debt refinancing costs make it harder for companies to honor loans. Upcoming third quarter earnings are also expected to be mixed for some sectors amid weakening demand and and higher costs.
“We expect investors to remain on the sidelines as the drop in markets this week is just an extension of the consistent drop we’ve seen recently,” said Junaid Ansari, director of investment strategy and research at Kamco Investment Co. “We prefer to wait for any positive catalyst to take position in regional markets especially given the uncertain situation related to interest rate hikes and the looming economic slowdown expected next year.”
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