Saudi Stocks Eye Bull Market as Rates Optimism Offsets Lower Oil

(Bloomberg) -- Saudi stocks were set to enter a bull market as optimism about lower interest rates outweighed sliding oil prices, which are still the country’s main source of income.

The Tadawul All Share Index rose as much as 0.4% on Sunday, taking gains since the March lows to just over 20%. A fourth-quarter rally was largely driven by growing optimism that the Federal Reserve will shift to cutting interest rates in 2024. Central banks in the Gulf, like Saudi Arabia’s, largely follow the US monetary regulator’s decisions in order to protect their currency pegs to the dollar.

A fund manager survey from Saudi brokerage SNB Capital showed investors adopted a positive outlook in the fourth quarter and bearish views decreased to a record low — a sign sentiment has shifted from early October, when the index erased its 2023 gains on the back of the Israel-Hamas war. Survey participants continued to expect that oil prices, interest rates and inflation will be the main market drivers. 

Crude prices slid in the fourth quarter as surging production from the US and elsewhere countered efforts by the OPEC+ alliance to shore up the market through output cuts. The outlook for demand is also fragile, with the International Energy Agency forecasting that growth will slow sharply next year.

But even as oil giant Saudi Aramco dropped nearly 6% in the last three months of 2023, it’s still the biggest contributor to the Tadawul’s gain this year. Al Rajhi Bank and utility firm ACWA Power Co. were also among the top gainers.

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