Saudi stocks record the worst performance since April due to the escalation of the trade war

Saudi stocks ended the first sessions of the week, on a sharp decline, which is the worst in about a month and a half, under pressure from the majority of companies, especially the leadership, on top of which is the arrow of “Aqua Power”, amid trading that is the lowest in nearly two weeks.

The general market index closed at the level of 11 thousand points, losing 1.7%, affected by the escalation of trade tensions, after US President Donald Trump threatened to impose customs duties by 50% on the European Union, in the event of no agreement before June, which increased pressure on global markets.

Improved assessments keeps optimism
The main Saudi financial market is currently circulating at profitable repetitions approaching 15 times, which are the lowest in the two years and less than the historical average, at a time when dozens of companies recorded their lowest annual levels, while “SABIC” share has fell to its lowest price since 2009, which reflects the market arrival at historical levels that it used to show signs of cohesion.

In the event that the market does not record an improvement during this week, this may be an indication that investors are looking for higher returns to compensate for the growing risks and the high level of uncertainty, which may push the index towards further decline.

Fluctuations with the escalation of trade war
The previous positive moves were driven by the United States and China to reach an initial agreement, according to which the customs duties were reduced for a period of 3 months, which reflected positively on the morale of customers and market performance.

However, the return of commercial tensions, in addition to the weak demand in the auctions of American and Japanese bonds, has re -concerned about the future of global debt economic growth.

This was reflected in the bond markets, where the returns of American bonds increased for 30 years to more than 5%, reaching levels similar to those prevailing in 2007, which also prompted the returns of Saudi bonds to rise.

Challenges of high risk returns
The high risk -free returns are a negative factor of stocks, as it becomes less attractive compared to other high -yielding assets and low risks, and the high discount rate reduces the current value of future cash flows, which presses stock prices.

On the other hand, expectations rose to install interest rates during the first half of this year, while estimates have declined about the number of reduction times from 4 times to only twice, which means reducing the volume of expected savings of companies from the low financing burdens.

The weakness of the dollar increases the risks
Despite the high risk of interest rates at high levels, the dollar is still suffering due to the decline in foreign investment in the United States and the escalation of the trade war, two factors that negatively affect growth.

Locally, the continued weakness of the main international currency “the dollar”, with the exchange rate remaining fixed, may increase the possibilities of high inflation rates as a result of the high cost of import, which may pressure companies’ profits, especially if it is not able to pass those costs to the final consumer.

Financial Analysis Unit