Saudi Shares Plunge as US Downgrade Festers

Saudi Arabian shares tumbled for a third day, sending the benchmark index to its largest intraday drop since March, amid rising concerns about the global economy after Standard & Poor’s cut the U.S.’s credit rating for the first time.

Saudi Basic Industries Corp., the world’s biggest petrochemicals maker, dropped the most in two months. Al Rajhi Bank, the kingdom’s largest publicly traded lender by market value, reached its lowest intraday price since March.

The 147-company Tadawul All Share Index slumped 5.9 percent to 6,041.01, the steepest intraday decline since March 1, at 12:41 p.m. in Riyadh. All 15 industry groups fell. The index has fallen 11 percent from the year-high of 6,786.03 on May 22.

“The Saudi market is reacting to the steep declines in global markets over the weekend,” said Asim Bukhtiar, an equity analyst at Riyad Capital. “Growing concerns of the U.S. relapsing into recession are driving sentiment.”

U.S. stocks fell the most in 32 months this week and European stocks posted their biggest weekly loss since November 2008. The S&P 500 slumped 7.2 percent, the biggest weekly drop since November 2008. The Stoxx 600 Europe Index tumbled 9.9 percent to 238.88 this past week, the gauge’s lowest level in 13 months.

Oil tumbled 9.2 percent this week, the biggest drop since the week ended May 6. Crude for September delivery was settled at $86.88 a barrel on the New York Mercantile Exchange. Saudi Arabia holds 20 percent of the world’s proven oil reserves.

U.S. Downgrade

“The combination of the global equity and commodities meltdown during the Saudi weekend and to a lesser extent the expected downgrade by S&P is having an impact on all sectors of the market,” said Fuad Aghabi, a director at Ajeej Capital, in Riyadh.

Standard & Poor’s downgraded the U.S.’s AAA credit rating for the first time since 1941. S&P lowered the U.S. one level to AA+ while keeping the outlook at “negative”. The U.S. immediately lashed out at S&P, with a Treasury Department spokesman saying the firm’s analysis contains a $2 trillion error. The rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, the New York-based firm said yesterday.

“At this point, the impact of the ratings downgrade is not evident,” said Bukhtiar. “Regional markets will take their cue from global markets on Monday when they open.”

Sabic slumped 3.4 percent to 100.25 riyals, the sharpest intraday decline since June 4. Al Rajhi declined 2.8 percent to 70 riyals, the lowest intraday level since March 6. National Industrialization Co., known as Tasnee, dropped 6.8 percent, the sharpest decline since April 4, to 39.50 riyals.

Saudi Arabia’s stock exchange is the only Gulf Arab bourse open on Saturdays.

--Editors: Digby Lidstone, Andrew Noel.

To contact the reporter on this story: Mourad Haroutunian in Riyadh at [email protected]

To contact the editor responsible for this story: Shaji Mathew at [email protected]