Saudi investment in foreign securities rises in August

Saudi Arabian Monetary Agency’s net foreign assets stood at $659 billion at the end of August. Investment in foreign securities recorded a monthly increase for the first time in 2015, rising by $4.2 billion, according to a report from Jadwa Research.

“We think (this) is partially due to the government’s new dual financing strategy that includes debt issuance, as oil revenues remain low,” the researchers in Jadwa’s Saudi chart book for Oct, 2015. 
The move indicates that pressure continued to be relieved off foreign reserves as the main deficit financing tool. This reflects in part the positive impact of the government’s new financing strategy, according to Jadwa Research.
Year-on-year growth in bank credit to the private sector slowed to 8.4 percent in August, stated the chart book. 
“This confirms our earlier expectations of a slowdown in credit growth during 2015 to 9.5 percent,” added the researchers. 
Year-on-year growth in total bank deposits also slowed. The slower growth in deposits relative to credit pushed up the loan-to-deposit ratio to 81.7. 
Total bank deposit growth slowed slightly to 6.6 percent year-on-year in August, primarily due to a slowdown in government deposit growth. 
Headline inflation slowed in August, year-on-year, to reach 2.1 percent, down from 2.2 percent in July. The slowdown was impacted by subdued inflationary pressure from both foodstuffs and the core index. 
Rentals for housing, the main segment of housing inflation, rose to 4.9 percent year-on-year, its highest in 14 months. 
Nonoil exports in July remained 20.6 percent lower than the same period last year. 
Petrochemicals and plastics, the two largest nonoil exports, continued to be the hardest hit so far in 2015, falling more so compared to other nonoil exports. Imports also fell by 12.2 percent, year-on-year. 
The chart book added that Saudi crude production dropped slightly month-on-month in August, but was up 7 percent compared to a year ago. 
Iraqi production recorded its fifth consecutive monthly increase as exports reached record levels. Iranian production was up 5 percent in August when compared to the first half of 2015. 
“We expect Saudi crude production to decline only marginally throughout the remainder of 2015,” said the researchers,
Latest data for July shows Saudi exports edged down slightly month-on-month in July, but were still above the 7m bpd mark.
On exchange rates, the dollar edged upwards in September despite the US Federal Reserve (Fed) not increasing interest rates during the month. 
Uncertainty over emerging market growth is resulting in increased flows to the dollar and safe-haven currencies, such as the euro. The dollar/Saudi riyal one year forward remains under pressure, according to Jadwa Research. 
“We see the dollar/riyal forward returning to 3.75 as the issuance of Saudi government debt slows the pace of foreign reserve drawdowns, going forward,” said the report.
STOCK MARKET: Tadawul All-Share Index (TASI) trended downward in September for the second month in a row although September’s decline was in line with regional and major global indices. Although the TASI’s fall during September was in line with regional markets, it was better than emerging markets as a whole. 
Market turnover remained subdued during September as seasonal factors contributed to lower month-on-month average daily volumes. This was also reflected in sectorial volumes, with almost all sectors recording lower than year to date averages, according to the chart book.
Lower trading activity and a small sell-off in shares during September resulted in price-to-earnings (PE) ratio in the TASI remaining unchanged month-on-month, although it is still comparatively expensive to regional markets, the Jadwa report added.
It said dividend yield has shown limited change month-on-month, remaining average to comparable markets. 
Although nine out of 15 sectors saw positive performance during September, the generally weaker sentiment resulted in a volatile and mixed performance within sectors. Some sectors performance, such as building and construction and cement was affected by seasonality, according to the chart book. 
In August, key consumption indicator data rose, year-on-year, reflecting healthy domestic demand. Data on PMI pointed to robust levels of activity in the non-oil private sector in both August and September. Cement production and sales showed a rebound in August following a seasonal dip in the previous month. 
ATM withdrawals and point of sale transactions rose in August by 11.5 percent, and 18.2 percent, year-on- year. The nonoil private sector PMI rose to 58.7 in August, before cooling slightly to 56.5 in September.