Oil denies Saudi Arabia regional stock crown

NEW YORK: Oil has denied Saudi Arabia the opportunity to overtake South Africa as the biggest stock market in the Middle East and Africa, even as political turmoil and a faltering economy hold back share prices in Johannesburg.

The total market capitalisation of the South African bourse was US$489 billion (RM2.04 trillion) as of Friday, about US$25 billion more than that of Riyadh’s after its main index advanced 10 per cent this year, about five-times the gain in Saudi Arabia’s Tadawul All Share Index.

The kingdom’s market reforms, which were designed to attract foreign investors, have been countered by the effects of lower crude price, the kingdom’s main source of income.

“While South African politics is improving and the economy is now out of recession, oil prices haven’t gone up and Saudi Arabia’s inclusion to MSCI emerging markets is still pretty remote,” said Didier Rabattu, the head of equities at Lombard Odier Asset Management.

Saudi Arabian shares erased losses for the year in June when index compiler MSCI Inc said it could potentially be classified as an emerging market next year, a move that would trigger billions of dollars of inflows. FTSE Russell is expected to announce at the end of this month whether it will add the kingdom to its emerging-market category.

Share performances in both countries have lagged an MSCI’s index for developing nations, which has climbed 27 per cent this year. While Johannesburg’s benchmark has outperformed Saudi Arabia’s, its performance has been hindered by an economy that dipped briefly into recession and as investors await President Jacob Zuma’s successor.

Another factor keeping the combined value of Johannesburg stocks ahead of Riyadh’s in dollar terms is foreign exchange: while the riyal is pegged against the greenback, the rand has strengthened 6.3 per cent this year to 12.9291 per dollar on Friday. Bloomberg

Oil prices haven’t gone up and Saudi Arabia’s inclusion to MSCI emerging markets is still pretty remote.