Morgan Stanley: Oil prices above $90 boost Saudi market

Morgan Stanley Bank revealed its expectations that oil prices remaining above $90 per barrel levels will lead to a recovery in the Saudi stock market, as a result of the market’s correlation with oil prices historically, especially as happened in the first decade of the 21^st century.

The US bank added that Saudi Arabia has many structural growth engines catalyzed through reforms and Vision 2030 and work towards the continued benefit of oil, as Saudi Arabia invests in renewable energy sources as an opportunity lower cost because burning oil for energy is much higher now.

The World Bank indicated that the exchange relationship between Saudi stocks and oil prices has been structurally rising over the past 15 years, as most of the Middle East markets – not just Saudi Arabia – witnessed the structural rise in their correlation with oil prices, more importantly, the recovery in the Middle East It does not depend on the sudden rise but rather higher for longer oil prices, for example the price level between 80-90 dollars / barrel is the key.

According to the report, both SABB and Alinma Bank of the banks under coverage have the highest exposure to corporate loans, which are more susceptible to high interest rates, and the high share of demand deposits is also beneficial, noting that the ratio of deposits to loans is close to 90% in some banks, but liquidity injections will lead to a reduction in the ratio of deposits to loans.

On the other hand, the report indicated that the initial selling of Saudi stocks is often driven to a greater degree by fears of lower profits, but when the selling does not match the negativity to some extent, the reconsideration of profit expectations is followed by a recovery, and this is the case now as the the pattern is similar in relative terms against the markets of the region, and in principle, the selling of Saudi stocks is usually driven by the downgrade of the rating, but if this downgrade is not accompanied in the end by one of the near negative reviews of profits, it is followed by a recovery of the index, and the absolute declines often occurred with this. The volume recently seen alongside or before a significant drop in oil prices – but this time it may be more in line with the 1970s than the previous cycle.