The Daily Star (Lebanon)

Riyal weakest in years over Khashoggi case

- By Andrew Torchia

DUBAI: Saudi Arabia’s currency fell to its lowest level in two years and its internatio­nal bond prices slipped Monday over fears that foreign investment inflows could shrink as Riyadh faces pressure over the disappeara­nce of journalist Jamal Khashoggi.

Trade in the forward currency market, used by banks to hedge investment­s, suggested some institutio­ns were protecting themselves against the risk of capital outflows or U.S. sanctions on Riyadh after the disappeara­nce of Khashoggi, a prominent critic of Saudi authoritie­s, in Istanbul.

But the market moves were smaller than some bouts of instabilit­y in the last several years, indicating investors were not as panicked by the Khashoggi case as they were by a plunge of oil prices that began in 2014.

U.S. President Donald Trump threatened “severe punishment” for Riyadh if it turned out that Khashoggi was killed in the Saudi consulate in Istanbul, as Turkish officials allege. Saudi Arabia has denied this and Sunday warned it would counter any sanctions with greater ones of its own.

Oil prices moved only slightly Monday as analysts said they doubted Saudi Arabia, the word’s biggest exporter of crude, would risk internatio­nal isolation and damage its own finances by cutting back exports at a time when it is pushing through reforms designed to create jobs and diversify its economy.

But Krisjanis Krustins, director in the Middle East and Africa team at credit ratings agency Fitch, said the affair could hurt some parts of the reform program.

“If there is any lasting change in investor willingnes­s to engage with Saudi Arabia, it could lead to slower and less complete implementa­tion of some Vision 2030 initiative­s, and greater need for Saudi Arabia to use debt and internal resources to finance them,” he said.

The riyal was quoted at 3.7524 to the U.S. dollar in the spot market early Monday, its weakest rate since September 2016, Refinitiv data showed. The central bank maintains a peg of 3.75 riyals to the dollar, and usually the currency fluctuates in a range of about 3.74983.7503. In November 2015, when oil prices were plunging, the riyal dropped as low as 3.7598.

In the forwards market, the dollar rose Monday as high as 100 points against the riyal, a ninemonth high, from 54 points Friday.

In 2016, it briefly rose above 1,000 points.

Yields on Saudi Arabia’s U.S. dollar bonds climbed, mostly at the long end of the curve; its notes maturing in 2046 were 15 basis points wider.

Krustins and other analysts noted that foreign investment flows into Saudi Arabia were already very low because of a weak private sector and uncertaint­y over regulation; this could limit the impact of any reduction of flows.

Media organizati­ons and a growing number of executives, including JP Morgan Chase & Co. chief executive Jamie Dimon, have pulled out of a major Riyadh investment conference scheduled for next week, dubbed “Davos in the Desert.”

The Saudi stock market had tumbled 7.2 percent over the previous two trading days because of the Khashoggi case, but it rebounded 2.0 percent Monday.

Traders said some institutio­nal investors, including foreign ones, were buying stocks at the lows, believing Saudi Arabia’s fundamenta­l economic situation was unlikely to change much.

But many bankers and analysts said the Khashoggi case had fueled perception­s of political risk in Saudi Arabia because it was the latest in a series of unexpected incidents over the past three years.

During this period Saudi Arabia has launched a war in Yemen, imposed an embargo on Qatar, arrested dozens of top officials and businessme­n in a corruption purge, detained women’s rights activists and seen tensions with Canada and Germany rise.

Jason Tuvey, senior emerging markets economist at Londonbase­d Capital Economics, said political developmen­ts in Saudi Arabia were becoming an increasing­ly important economic risk.

 ??  ?? The Saudi currency dropped to its weakest rate since September 2016.
The Saudi currency dropped to its weakest rate since September 2016.

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